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Re: Examining Inflation

Posted: Sat May 08, 2021 10:46 pm
by Mister Imperceptible
JCD wrote:
Sat May 08, 2021 7:32 pm
I'm curious if you think that 100% YoY will be the average of the US or the max in some specific US markets (ala Boise, ID region)?
I make no specific forecasts. What I mean is that if the Boskin Commission is known to be fraudulent, CPI is useful only as propanganda, and people like Lacy Hunt will ignore empirical evidence because they are unable to look away from the propaganda.

Whether the outcomes of policies implemented with the aid of this propaganda are intentional or de facto I leave for you to decide, but my understanding of power dynamics leads me to the former and I take action accordingly.

Re: Examining Inflation

Posted: Sun May 09, 2021 4:29 am
by JCD
Mister Imperceptible wrote:
Sat May 08, 2021 10:46 pm
I make no specific forecasts. What I mean is that if the Boskin Commission is known to be fraudulent, CPI is useful only as propanganda, and people like Lacy Hunt will ignore empirical evidence because they are unable to look away from the propaganda.
Let's take Ritholtz at his word and assume CPI is off by 1.1%. That would make CPI for the period of 2000 to today roughly 2.1%. Add 1.1% + 2.1% and you get 3.2%. Shiller would suggest a 4% inflation rate for housing since 2000. So arbitrarily let's assume housing is 50% of all cost (as it is the higher number) and just average them. I know this will overstate the # since CPI already has some level of housing inflation built in, but this isn't meant to be exact, it is meant as an illustration. That puts inflation at roughly 3.5%. 2.1% vs 3.5% is per the rule of 72 about 34 years vs 21 years between doublings. Not exactly the crazy high like the Chapwood index suggests nor shadowstat's 6%. Again rule of 72 says 6% is 12 years between doublings while 10% is 7 years between doublings. I'm not cheerleading the CPI # as perfect, just it appears more correct than the opponents seem to suggest. Is there something more that I'm missing?

As for the fed impacting behavior, that seems reasonable to me.  We know small changes have large impacts within systems and we often leave it to governments and large corporations to tinker with these systems.  It is completely possible the fed has lowered birth rates, for good or ill.  I did like the source and will do more reading from that perspective, I'm not just dismissing it, but it could be many possible reasons.

For instance it is possible that the cure for low birth rates is low birth rates and the cure for high birth rates is high birth rates.  Stagflation might be an economy that is unable to process the incoming step change function of people and thus pushes prices up to slow birth rates down. That would fit information theory the Austrians like to point out.  This is basically one of the less popular theories for stagflation in the 1970s. The fed "breaking the back of inflation" was actually hand waving while the boomer sized pig moved through the python.  If this is true, you'd expect a small 'gen x' like generation post millennials and then a boom post gen z.  I'm not claiming this is true, it's just hard to dismiss that roughly 30 years after a large generation is born you see stagflation when we have two generations that roughly fit that.  My biggest counter is that it didn't happen this way outside the US.  I can make up stories about how the Jones were a US only phenomenon due to policy differences in the late 60s and early 70s... but even I don't find that sufficiently convincing.  So in answer, I simply don't know how well population correlates to fed balance sheets.  I do know population(*) is a really tough nut to crack.

(*) While excellent I will warn you this Yale course is depressing.

Re: Examining Inflation

Posted: Sun May 09, 2021 2:53 pm
by Mister Imperceptible
JCD wrote:
Sun May 09, 2021 4:29 am
Is there something more that I'm missing?
If you are attempting to locate a precise number for inflation, I do not know, I am not seeking the precise number. If the number must by necessity be higher than the so-called risk free rate, the egoist action is to not be personally liquidated along with the debt. To know that people are being liquidated in aggregate is sufficient motivation.

Re: population and Fed policy, I will not rule out your sources as cause is often confused with consequence and so will look at them when time permits.

Edit: I rolled thru the Yale course descriptions and my stance is the same. To protect and subsidize the Boomers, the younger generations have been collectively strangled. Too bad the recent pandemic was not more lethal. Regardless, currency dilution will continue indefinitely and I position with that in mind.

Re: Examining Inflation

Posted: Mon May 10, 2021 2:48 pm
by Riggerjack
I can't speak for @Riggerjack regarding redistribution without creating more money, but if I were Riggerjack I'd say that the problem is that ultimately the money goes into the seller of the assets from those who are poor. Think Russia in the 1990s where it created shares of various industries and those who had no money sold the shares for cash today while the oligarchy bought them up on the cheap.
Certainly that is one way that works.

But specifically, I was looking at the ways the poor spend money, and in particular, new money (to them).

Whatever the amount of UBI, at whatever income cutoff, the vast majority of this money will be spent, soon. This is what makes this so "efficient" from a macro interventionalist perspective.

But in urban/suburban real estate, the housing stock is slow to change. More money, same goods, rent is going to go up. Causing some renters to become buyers, but also as a landlord, anticipated rent is part of the price I will pay for rental real estate. Anticipated rent is a factor in what price I sell at.

Some people will move for better neighborhoods, others for better environs, but rent is based on the few people who do move, and the price they pay. Very quickly, higher rents translates to higher real estate prices, which lock in those rents. (It's hard to drop the rent below carrying costs for landlords). Most people won't move, and will end up paying more rent when their lease is up. Most people won't sell or buy, but homeowners will know that their home value has gone up. And banks will finance based on this higher value. Opening up more credit for the holders of these assets.

So this effort to make it possible to live w/o work simply raises the appreciated real estate prices and rents collected by existing real estate owners, and thus COL (NOT CPI, which is specifically set up to exclude this localized price change. Not for political purposes, but as a condition and purpose of CPI as a generalized inflation tool.)

In areas where real estate is not the confined variable (rural, and economically depressed areas) the money goes to consumer goods. Again, money flows from gov to poor person to existing businesses, and their many owners (and stockholders). Here, this contributes to CPI inflation, but it is a small drop in a big bucket. Not a huge change like in urban areas.

So I am not against UBI for political reasons, but for practical ones. It would raise COL, not raise CPI, (and thus is unreflected in entitlements) and make the problems it was supposed to fix, worse.

But one isn't going to find this using someone else's data, then misusing it. One would have to actually look at markets and see what is happening.

"In theory, there's no difference between theory and practice. In practice, there is." YB

Re: Examining Inflation

Posted: Wed May 12, 2021 7:18 am
by JCD
Mister Imperceptible wrote:
Sun May 09, 2021 2:53 pm
Re: population and Fed policy, I will not rule out your sources as cause is often confused with consequence and so will look at them when time permits.

Edit: I rolled thru the Yale course descriptions and my stance is the same. To protect and subsidize the Boomers, the younger generations have been collectively strangled. Too bad the recent pandemic was not more lethal. Regardless, currency dilution will continue indefinitely and I position with that in mind.
I guess I miss-spoke just a bit as I forgot to cite one of the sources for my idea and didn't clarify what Yale's lectures convinced me of in detail. I should have said that the Yale course convinced me that demographics are more complex than I previously thought. Specifically there is no clear tight single variable or set of variables that consistently explain the downward step function change in birth rate into modernity. We don't know why birth rates fell in the 1800s. Economic development, which is the effective argument being made by citing the fed should be held suspect. Specifically in the largest shift in demographics in the modern era, it appears to be a pretty broken theory. If we can't figure out that era, why would a particular squiggle in the federal funds rate explain a change in birth rate, yet other squiggle don't?


The most important aspect I think is that if interest rate step changes by the fed and energy price spikes made people even poorer in 1979-1981. If you buy the economic argument, then you'd expect fertility to keep diving ever lower, at least until 1981, yet the drop seems to be better situated with things like contraception becoming more socially acceptable and women entering the labor force.

Regarding the idea of the Boomers not having enough resources to have kids, having gone back to my notes it appears it was a synthesis of Mike Green's 70s fed thesis and Yale's course. Since I forgot to cite Mike Green before, I'll put a few choice quotes below. I'm not saying Mr. Green is right, just it gives a very different view than the typical "the Fed saved us from inflation in the 70s". If you think that higher prices are a way of the economic system signaling "I can't handle this many people's demands" (ala college in the past 10-20 years, housing more recently, inflation in the 70s) then the decline in the birth rate as the boomer pig in the python is processed appears to be a good explanation for birth rates. That is to say, you don't want kids until your sure you have a house and all the goods and job you need to maintain your house. If the economy takes a decade to prepare for that, it makes sense you'd have kids later in life. If you think prices are about "dollars chasing goods" as in inflation is the printing of dollars rather than the supply of goods then the above graph makes sense as an attack on birth rates. Of course we need not choose, both explanations might be impactful.

I also don't disagree that the Boomers pulled the ladder up after they were done using it and left the next generations worse off, just I'm not sure that the fed can be held responsible for lower birth rates. I think the fed has plenty of other things we can more legitimately accuse them of... Regarding boomers, if you think of the 4th turning and the idea that the boomers are more selfish or inward turning as Neil Howe described, that could also explain why they would be less interested in having kids. My point is there are so many explanations for birth rate, it seems absurd to go blaming the fed here. I get it is academic for you, but I thought it was worth examining as it relates to inflation in how inflation impacts life in general.

Now for those Mike Green quotes:

"Alan Blinder called The Anatomy of Double Digit Inflation in the United States in the 1970s. Very readable, quite easy. And what it points out is something very straightforward, which is that the metrics of inflation that the Fed was monitoring during the early periods of the Volcker administration from seventy nine until eighty one, included mortgage rates and inflationary conditions. So when the Fed hiked interest rates, what it was actually doing was raising mortgage rates, which then was showing up as an increase in the mortgage payment, which was then coming through the CPI and saying, hey, the inflation rate went up.

And so it was a positive feedback loop that Volcker created where that became the driver of inflation in the seventy nine to eighty one time period. And he literally just kept hiking it until he destroyed the entire economy.

Most people tend to think about a labor force as a reduced labor force means the cost of labor goes up. They forget the demand side of the equation. Somebody entering the labor force is making the single simplest and most powerful declaration they can possibly make... I want to consume more.

And what form does that consumption make? Well, you need a place to live that required somebody to borrow money in advance, construct a structure for you to live in, put a dishwasher and put a refrigerator and put air conditioning in it, etc.. All that has to be done before you touch it and you're doing that entire thing on credit.

So it's money that is being created in another form. What did Volcker do and what did the Fed do in the nineteen seventies by reacting to the increase in prices associated with this outward shift in the aggregate demand function tied to an explosion of the labor force largely tied to demographics and some regulatory changes, they chose to respond to it by trying to hike interest rates to keep prices from going up. Well, that has almost no impact. I don't know if you remember what it felt like to be in your 20s and your income's rising rapidly.

And you could literally care less about why so many 20 year olds rely on credit card debt because they presume that their income is going to rise so rapidly and they absolutely need that toaster oven right now. And so it has very little impact. Effectively, there's a hyperbolic discounting rate for younger generations that were streaming into the labor force and wanted everything. And we're being presented with a variety of financing options that allowed them to obtain it in a manner that they hadn't previously.

And the Fed's out there hiking interest rates at the exact same time that the oil crisis destroyed a significant component of the capacity of the US economy that relied on oil fired generation. So you had an outward shift in the aggregate demand curve, an inward shift in the aggregate supply curve. Guess what? You get a spike in prices. And Volcker's reaction to that was more cowbell....

One of the things that I would encourage people to do is to look around the world and look what happened to inflation rates. They rose on a coordinated basis on a global front from basically nineteen sixty five to nineteen seventy nine. The minute that Volcker took office. Everywhere else in the world, inflation rates fell starting in nineteen seventy nine, except for the United States where Volcker hiked interest rates. Driving this dynamic is well documented on a contemporary basis in Alan Blinder piece in nineteen eighty three that the Fed itself drove that inflation."

- ... ss-podcast
"So people tend to confuse the story of the 1970s, they think of it as a hyper inflationary type environment that the US was losing control, What was really happening in the 1970s was that we had an unprecedented expansion of households and labor force all of which needed new durable goods to meet their consumption objectives. The Fed misinterpreted that information hiked interest rates to levels that they never should have been hiked to and in response created the conditions of the resurgence that we've seen over the past give or take 35 or 40 years.


What we saw in the 1970s was a fantastic shift outward in the aggregate demand function tied to the baby boomers, tied to women entering the labor force, tied to minorities entering the labor force and the simultaneous restriction of supply that was created by the feds inappropriately tight monetary policy. So they effectively prevented the supply curve from shifting outwards and we had the really unfortunate dynamic associated with oil shocks, etc., that took roughly a third of the production capacity in the US, combination of the less unfortunate Clean Air Act, and the oil shocks of the 1970s that had the unfortunate impact of shifting inward the US production curve, about a third of production going into the 1970s was tied to oil fired generators." - ... green/file

Re: Examining Inflation

Posted: Wed May 12, 2021 7:49 pm
by Mister Imperceptible
While I admire Green’s take on the impact of passive investing I think he is a prime example of one confusing cause with consequence when it comes to inflation and throughout the last year he has repeatedly stated “you do not have the right to step aside or opt out” (of the repression/inflation) when speaking to gold and crypto investors. He has also been very political with anti-China statements (that I mostly agree with) but with respect to currency I see him acting as an apologist for the US banking regime.

I see inflation as primarily a monetary phenomenon and while the Fed may not itself create all money it backstops the other banks with guarantees. I do not have the time at the moment to give a properly scholarly response to your post with sources, but I would look at the 1960s Guns and Butter spending along with the failure of the London Gold Pool as the primary reason for the 1970s inflation. Countries like West Germany that had strong memories of hyperinflation also had a demographic boost post-WW2 baby boom and they did not have the same 1970s inflation because the resolve was there to keep the currency strong (and they did not have the same military adventures in Vietnam or Great Society spending).

I am saying it is the younger generations who are being strangled and not having children because a few dozen people in Manhattan who own everything dilute the currency, give the new currency units to themselves and their closest instruments, and then buy all the assets with it. Over 99% of the Boomers who own assets are not amongst those few dozen in Manhattan but they are along for the ride and they got theirs too, Jack.

Debt overhang, demographics, technology and a globalized workforce are all deflationary but there is no physical restraint on currency dilution. It would take over 31,000 years to count to a trillion.

Own assets that cannot be diluted. Precious metals, weapons, and maybe a 4x4 SUV with 35 inch tires (financed with no money down for 7 years at 1% while used car prices go parabolic) to run over zombies with. The banks are also unable to devalue your sense of humor. If you can keep it (while others lose theirs), it should appreciate in real terms as everything else gets worse, like gold.

Re: Examining Inflation

Posted: Thu May 13, 2021 7:20 pm
by JCD
One of the things asked is why try to estimate "real" inflation, as long as you know the books are cooked and the bonds returns won't protect you? It got me thinking, what would the difference between say 2% and 4% inflation rates be in a 100 year lifespan. So I built up a calculator to do it. This does not use the rule of 72 as it was not accurate enough. It assumes you start with a single dollar product that is inflation resistant (say 1 dollar in gold) and the value it would become in currency terms assuming an even rate of inflation. I've not updated my link to the first spreadsheet with this new abuse of excel, but I can if anyone wants it to try more exact stats. Incidentally, given my 2.1% vs 3.5% comment earlier, in 100 years 2.1% would inflate to $7.99 vs 3.5% inflation at $31.19. Clearly a 1.4% increase has a sizable impact over 100 years as the change creates non-linear changes in outcome.


Re: Examining Inflation

Posted: Sat May 15, 2021 10:01 pm
by Qazwer ... ates-show/

If demography is destiny, then at some point we may have deflation

Re: Examining Inflation

Posted: Wed Jun 02, 2021 3:56 pm
by Crusader
shemp wrote:
Tue Apr 27, 2021 12:59 pm
I don't want to die with a huge hoard, which is a disgrace IMO.
Why? You can always leave it to charity. How is giving it to family or friends or sugar baby any better?

Re: Examining Inflation

Posted: Mon Jun 07, 2021 5:37 pm
by Riggerjack

I was looking at getting a shipping container, for storage on my land. I'm clearing an area now, so I went shopping.

I bought a 20 footer about a decade ago for 700, plus 400 delivery. But that was off of eBay, 2k would have been a more regular price.

But now when I look, containers are $6-8k, and hard to get.

When I look further, I find that shipping has skyrocketed. A year and a half ago, shipping a 40' container across the Pacific was approx $2k. Now it's 8-10k. China is adding core fees to containers it ships, because Chinese ports are running low on containers.

Shipping companies are adding $1k "guaranteed reservations" to their manifests. If you miss your ship, someone else gets your space, and your fee (minus the grantee money) is returned to you. But look at the cost differential.

Shipping is higher (covid caused ships to be decommissioned, shipping companies are reluctant to do anything to relieve the shipping shortage, and are enjoying higher than usual revenues). By a lot. This is going to change prices. Across the board, but starting with the high value density items that get shipping priority, then extending into low value density items that simply won't move while shipping demand is high.

All of this was to ask if you consider these potential changes to retail prices as inflation, or something else?

Re: Examining Inflation

Posted: Tue Jun 08, 2021 3:18 am
by JCD

I do buy the economic definition of "general increase in prices," but I think that is scapegoating the question of, "is this part of a general picture?"
If you are a retail customer buying shipping containers, yes, although I suspect that isn't commonly purchased and so I'd not expect it to be in the basket CPI holds. Shipping costs of containers OTOH would be a no, shipping costs are not an end product.

Longer winded rant:

I have a few ways of responding to you, one will seem flip, but I hope you don't take them that way.  My grandmother purchased her house in 1973 I believe.  She paid something like 30k for it and now it's worth 250k.  Last year you might have said it was worth 200k, if Zillow is to be believed.  That difference is between 4% and 4.5%.  Recall there were several periods in the 70s with 10% inflation.  In the longer run, .5% does matter some due to compounding, but it really isn't the thing to worry about if your assets are growing with it.  Let's say we see 10% CPI inflation for a year, an unlikely event, but within the realm of possibility.  In such a case, if it lasted a year, it would be a small change and would be nearly forgotten in history books.  Furthermore, what if it acts just like oil did last year.  I paid about $1.5 a gallon at one point last year.  The price then went back to the long term average.  Right now it's near 2019 levels, give or take some spare change in the sofa.  Basically 0 inflation. What if we get a spike in prices and then go back to the long term average?  Those who don't spend will be better off, but in general it will just be a short term blip if that happens.  I'm not saying take this view on faith, but what I'd look for is follow through... If we start seeing 4, 5, 6 dollar average gas at any point in the next 24 months, I'd be getting nervous.  This is a metric I do keep an eye on.
Let's take housing as an interesting example I've spent some time trying to understand.

(Edit: Former meme on someone with lumber being a millionaire here)

The funny thing is, lumber is going down and construction is seeing at least some casualties in what should be the best boom ever. Even if lumber went back to normal pricing, I'd not call that deflation other than in the sense a consumer buys the wood. I'd not call it inflation that wood costs more, but I do think housing prices are inflation.  The question is, why are housing costs going up, as that will help answer if this is a long term issue. There is decent evidence that speculators are buying up homes as are the wealthy (second home purchases are way up).  Low priced homes are the ones selling the slowest.  Rents are not rising to meet the cost of housing, although rents are rising.  There are no clear bank loans per broad data available to explain the purchasing of homes and the gov't money printed is not enough to explain the cash offers going on.  So one of two things is happening.  Either this is speculative mania of the cash rich or housing supply isn't there.  

On the supply side argument, elderly own most of the houses and maybe they are scared to sell.  We know that the rent/mortgage moratorium will be rolling off soon and given this claim by Fannie: "Financial situation will be better in the next 12 months... now 44% vs 51% in Apr 2019" it seems more supply will be coming. Fannie's data suggests a 12x increase in "bad time to sell" compared to April of 2019 (26% now, 2% then).  Add in all those without jobs who can't get bank loans (no NINJA loans anymore) and it seems likely those who have a house aren't going to put their home on the market now.

Of course it doesn't need to be either-or... it can be both.  So my point is that we've got a lot of unnatural elements going on in the market.  I admit that your story sounds like inflation of some sort.  What I don't know is if there are factors causing it (e.g. less flights means less packages shipped) that will undo over time or if this is actually a monetary phenomenon (printers go brrr).  The other question is, will buyers "take" the new prices.  If you raise the price of your house by 2x and say "Fed made me do it by printing 2x the money" but no one buys your house then you know buyers didn't accept the prices.  If they do accept the prices, but have no additional wages, doesn't that imply that other consumption will go down?  So the real question I have is, will wages really go substantially up to justify prices?  Will any of the other major inflation risks I know of show up and how long will they last?

I believe the inflation risks are:

Short term (24 months):
- Supply chains being emptied or off line.
- China buying everything up during the pandemic. ( ... -data.html )
- Significant war
- Party time with gov't money.- Workers refuse to go back to work for a variety of reasons.
- Banks might finally use the brrr to create credit (not true thus far)
- The Brrr might actually become money printing.
- Rich might "diversify" into owning commodities and keeping them in storage--making them more scarce.
- China cuts off trade with the US.
- Infrastructure "rot" due to the pandemic now must be replaced.

Mid term (2-10 years) & Long term (30 years):
- Wages up and they stick
- Chinese asset run (buy up homes in London, Vancouver, etc.)
- Elderly eating up productive people's time, due to requirements to be cared for.
- Isolationism
- Lack of oil as we divest from it.
- Lack of precious metals (and other commodities) as we didn't invest in the last couple of decades... and it takes decades to get these things going.
- China's population is getting elderly.  Where will the capitalist geese go for their cheap workers?
- China cuts off trade with the US.
- Significant war.
- Not enough skilled workers to solve problems (e.g. trades).

Those in the short term bucket I believe are the ones you're noting, but I suspect it will snap back to 2019 levels, give or take 15% by 2023.  Could I be wrong?  Absolutely.  Thus far inflation has gone farther than I would have imagined, particularly in housing.  Am I hedged against inflation.  Yes.  How much.  I don't like discussing that level of detail as I think it biases me too much; it might get me to become attached to my positions.

If my ramble still is missing something you're after me covering, just ask. It's late and I know I'm rambling. :)

Re: Examining Inflation

Posted: Tue Jun 08, 2021 6:25 am
by chenda
I don't recall the figure but a huge number of ships have apparently been scrapped during covid, as they were worth more as scrap metal than just sitting empty in a dock costing mooring fees for shipping companies, as global trade dropped. Often newish ships with years of life left in them. It will presumably take many years to rebuild fleets to pre-covid levels if indeed they are needed.

@jcd - respectfully pointing out there is a ban on memes on the forum.

Re: Examining Inflation

Posted: Tue Jun 08, 2021 10:57 am
by Campitor
JCD wrote:
Tue Jun 08, 2021 3:18 am

I do buy the economic definition of "general increase in prices," but I think that is scapegoating the question of, "is this part of a general picture?"
If you are a retail customer buying shipping containers, yes, although I suspect that isn't commonly purchased and so I'd not expect it to be in the basket CPI holds. Shipping costs of containers OTOH would be a no, shipping costs are not an end product.

And therein lies the rub. The CPI openly admits there are limitations to its measurements - see ... uestion_22

Mull over this excerpt in section 22:
"The CPI does not produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly or the poor. Note that we do produce an experimental index for the elderly population that is available upon request; however, because of the significant limitations of this experimental index, it should be interpreted with caution."
The average consumer doesn't exist. We may all have some common purchase items that can be measured by CPI but then outlier events and/or unmeasured CPI purchases is where consumers experience sticker shock. Using CPI alone or assigning it greater weight in regards to future cost will likely lead to errors in planning for future expenses.

And let's not forget that many items included in CPI are subsidized by government aid to corporations that produce those items. Should these subsidies disappear then the real cost of the items will be revealed. ... dy-problem:
Yes, you read that right. This year, farmers (on net) will derive almost 40 percent of their income directly from the U.S. government. Forty percent.
I'll leave off with a quote from the economist Bastiat:
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effects; the good economist takes into account both the effect that can be seen and the effects that must be foreseen.

Re: Examining Inflation

Posted: Tue Jun 08, 2021 1:19 pm
by giskard
Mister Imperceptible wrote:
Wed May 12, 2021 7:49 pm
Own assets that cannot be diluted. Precious metals, weapons, and maybe a 4x4 SUV with 35 inch tires (financed with no money down for 7 years at 1% while used car prices go parabolic) to run over zombies with. The banks are also unable to devalue your sense of humor. If you can keep it (while others lose theirs), it should appreciate in real terms as everything else gets worse, like gold.

Re: Examining Inflation

Posted: Tue Jun 08, 2021 2:20 pm
by JCD
chenda wrote:
Tue Jun 08, 2021 6:25 am
@jcd - respectfully pointing out there is a ban on memes on the forum.
I genuinely forgot that rule, thank you for pointing it out.  

(As I will be pulling the picture, for those who missed it, it was a reference to a owner of lumber being a "millionaire")

In this case I'd like to post-hoc argue it captures a spirit of something in inflation not really discussed before this-- the idea that inflation could be generated by memetics.  I recall hearing on the news that people in NC were warned off from trying to store gas in plastic bags when the gas pipeline was shut down for a week.  That is to say, runs on gas caused more of the gas price inflation than the actual supply/demand would have naturally seen.  Is it rational to put gas in plastic bags for an individual?  I suppose there is an argument for it.  Is it rational at a system level?  No.  As meme's are just culturally information rich sources they of course are likely to carry high emotions and cause folks to hoard things they do not actually need.  This makes prices seem inflationary up and until the resource constraint goes away.  Unless those folks get paid more money afterwards, it would then be rationally a deflationary story--they have less money after spending 3x to put gas in bags so overall the economy will be poorer.  

The question of "transitory" could almost be argued to be in part a question of memes or at least momentum.  Are people betting that higher prices will be here tomorrow, so get in now? I'd say yes but the deeper question is will people be able to pay higher prices or will this betting go bust?  The number and stickiness of wages is probably the #1 question in my head. If all the folks go back to work and get 15 or 20 dollars an hour from 7 dollars it will make inflation stick.  Oil prices are a second good proxy as the supply of oil and producers in the US have been hit, but the worldwide supply should be more stable.  Oil being a product used in almost everything means it fits that "general" price concept.  If those producers can force higher prices and we take them, it will also be inflationary.

Re: Examining Inflation

Posted: Thu Jun 10, 2021 2:41 pm
by Riggerjack
If my ramble still is missing something
Well, I gave you the story I did, because I wanted to understand how you are thinking of inflation. Because I think this is the source of our disagreement.

To me, there was absolutely no inflation in my example. None in containers, or shipping, or the general price changes to goods affected by either.

There were simply price changes. Changes in supply and demand and logistics, not money supply.

Because to me, inflation is a monetary phenomenon, and price changes are often not, even aggregate price changes.

So what you are trying to do, (sum up many separate causes, effects, and tools in one measure) causes a distortion in the data, with a corresponding loss of detail and accuracy. To me, this seems self-defeating. But my goals are not your goals, and my methods are my own.

I guess my question is why try to conflate separate things, as measured by their purpose built tools, into one measure? It would be one thing if one's single measure was a good overview, but by conflation one seems to hide, rather than illuminate, what is happening.

How am I interpreting your goals/methods wrong? This seems nonsensical to me. I just can't find a good reason to introduce this much distortion.

Re: Examining Inflation

Posted: Thu Jun 10, 2021 4:56 pm
by JCD

I think that there is a problem with that monetary style of measure as well.  If I somehow got a hold of a printing press and started printing "legit" dollars in the trillions, we'd both agree it was inflationary until I told you what I was doing with them... burying them in my backyard.  The problem as I see it is where that measure is done and what other factors are also changing in the world.  Is it the amount of money that is actually used once?  Is it the velocity?  How do you decide when inflation has occurred?  Is it the total money that exists somewhere?  Is it a ratio of the number of tangible assets to the number of dollars?  What about non-tangible assets that are in our collective minds?  Is it a ratio of the number of people to the number of dollars?  

What happens when multiple currencies exist?  I make my digital currency on top of a gold-backed currency so that we can have monetary expansion without leaving the gold standard--is that inflation?   If the birth rate is over replacement, but you are using a gold standard (assume no new gold is ever found), does that imply inflation or deflation?
We can say, "let's test it" or "let's see tests from the past."  That will give you one set of answers.  Another option is "I have a model" which is in effect a theory of how the world will work out.  Or you might say, let's ask a smart person.  Etc.

Ultimately I see many of these problems as being oracle problems.  That is to say, who gets to proclaim the truth?  In my own former profession I had this problem all the time, who says x is true?  I see this all over the place in metrics, who decides what metrics are right, what metrics mean, what is true?  For instance, when I look at sites for data for "Free Cash Flow" metrics I have seen wide disagreements to the point of one site giving a positive number and another site a negative number.  Which is true?  I need an oracle to tell me.  Most people in this case would suggest the 10-k/10-q would be that oracle, but that is a question that will be debated.  Maybe the CEO is the oracle.  Maybe it's an analyst who shorts the stock saying accounting fraud.

I don't deny that inflation via products is an imperfect proxy measure, with lots of problems, nor do I deny that monetary bases are a useful proxy measure.  As an informal definition I find useful, deflation is the increased power of my dollars to purchase and inflation is the reverse.  When using that view, I find the monetary measure to be the less useful proxy.  One difficulty in that form of definition is, that it doesn't give a time frame, that is to say, a short term spike in "inflation" or "deflation" really is open ended in so far as "is this de/inflation?"  It also does not specify what I want to buy, just my ability to buy is impacted.  In that sort of framework, I also agree that "asset price inflation" is a valid concern, albeit one I've been less excited to discuss as it gets into even more measurement issues.  Once I generalize it a bit and say, what the median person in my country buys, it becomes more difficult to measure (as what is median?) but it becomes more useful in trying to understand the constraints people feel they are under and am I under constraints like them?  I don't need a deep oracle to give me some sense of which groups will be under what pressures and how they will likely respond, just an oracle that is approximately right.

Monetary numbers on the other hand are really useful for measuring exact values, as the numbers are well documented.  Raoul Pal notes that the market has not gone up using the fed balance sheet in a ratio.  That is a pretty neat metric.  But is it useful?  I mean sure, based upon the fed balance sheet it didn't go up, but does that mean anything actionable?  Does it impact me or anyone besides "investors"?  Does it have predictive power besides "if fed balance sheet up, stocks up"?  I'm not really sure it does.  Does it handle the Euro-dollar which is not documented well by anyone?  Not really, but does that matter?  Who knows.  Without an Oracle to tell me what it means, I don't get a lot out of it.  I'm not saying monetary policy can't be used to make predictions, rather I simply don't know how to do so.  Maybe eventually I'll learn to use it.

Re: Examining Inflation

Posted: Fri Jun 11, 2021 2:16 pm
by Riggerjack
I'm not saying monetary policy can't be used to make predictions, rather I simply don't know how to do so.
Well, at least we agree on this.

For my purposes, macro tools are all wrong. I use them to check myself after the fact. They are simply too slow and broad to be useful at the scales I work in.

But I do appreciate the difficulty of creating and maintaining such tools, so when a tool gets used for political purposes, I note it, and acknowledge that it will be distorted by the use, but I just consider it less reliable.

For myself, I am not interested in Oracles. Models that need Oracles are probably useful for someone. But then, I am the only oracle I know, and even I don't know what I mean half the time. :twisted:

So why go so deep into this rabbit hole that you are trying to second guess professionals and institutions (who admit to active misdirection in their communication with each other and the public)? And why trust that any deviation from the official rate is more accurate, rather than less?

Rather than trying to interpret an Oracle's prophecy, my usual method is to reverse the scenario in as many vertices as I can think of, and note the differences. Then look at how this reflects on the prophecy. It turns out that prophecy (in my experience) is merely perspective, and every perspective has blind spots.

The solution to blind spots is to adopt a widely different perspective. Then compare and contrast.

So, for instance, in 2021, I'm watching a K shaped recovery from 2020 that doesn't make much sense. Observation and measurements vary widely.

I'm sure in 10 years, we will have the measurements to create a narrative that kinda fits 2021. But not knowing what that narrative will be, means I avoid this space, (passive investments) and watch for developments.