The Fed and Inflation

S

Spaghetti Code

I'm trying to piece together why the fed is pumping $80B a month into the economy, and came up with a simple theory, which I would like you to poke holes in.

  1. The Dual Mandate of the Fed is to keep prices steady and maximize employment.
  2. As long as these are accomplished, any other side effects are fair game
  3. The Fed says they notice a lot of "anti-inflationary" forces, so printing money combats this
  4. Inflation can (in a very simplified view) be looked at through CPI
  5. CPI is a weighted average of prices for things people buy
  6. Some things in the CPI, like Airline tickets, and gasoline prices, are artificially low due to governments making it difficult for people to travel and work
  7. As a result, CPI looks relatively flat.
  8. As soon as the world returns to normal, these values will suddenly rubber band back to high levels, and we will "see" high levels of inflation, and as a result, high interest rates.

I know this is obviously simpler than reality, but I am trying to fit the high level reason why the Fed might be pumping the stock market. In the case of point 2, if the Fed can pump as much cash, and turn a blind eye towards "inflation", they could theoretically favor the rich, without honestly measuring inflation. For point 8, the deflation in some commodities is counterbalancing high inflation. Only on average does it look flat.

I feel like this narrative explains a lot of the astonishing behavior of the Fed, and predicts how the pumping will end. Thoughts?


CPI Breakdown: https://www.bls.gov/opub/ted/2021/consumer-price-index-2020-in-review.htm
Fed Balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
 
I know one thing inflation is theft... Read some Ludwig Von Mises on the credit cycle and the crack up boom...the funny thing is they dress up this monster like it's something they cooked up with nuclear mathmatics....it's a terrible redistribution scheme....I think cryptocurrency will contend with the dollar if the gov let's it and help people flee this gov glut of printing
 
Your premise seems very reasonable. It's always surprising to people that understand why there isn't more inflation....it happens in a crack up ...it's not a slow climb to hyper inflation....I think we are in the perfect situation for a hyper inflation when the money in circulation starts seriously driving prices....it will suck for anyone who hasn't locked in 2% loans and bought tons of inflationary following assets..
 
OP what you said sound right on. Inflation is coming back, I don't know when, but soon. Maybe a year or two off, who knows. But when it comes, and come it will, it will be BRUTAL...
 
Saltynuts said:
OP what you said sound right on. Inflation is coming back, I don't know when, but soon. Maybe a year or two off, who knows. But when it comes, and come it will, it will be BRUTAL...
More...
No need to look far or wait a long time, just look at your grocery bills, utility bills and medical/insurance bills. I also feel sorry for those who is trying to buy a house if they cannot qualify for a 2.5% 30 year mortgage.

In general if you know where to look, inflation is there big time: Asset prices are spiraled out of control, housing, durable goods and stock prices... Fortunately, everyday goods are going up but at a much smaller scale.
 
ironchef said:
No need to look far or wait a long time, just look at your grocery bills, utility bills and medical/insurance bills. I also feel sorry for those who is trying to buy a house if they cannot qualify for a 2.5% 30 year mortgage.

In general if you know where to look, inflation is there big time: Asset prices are spiraled out of control, housing, durable goods and stock prices... Fortunately, everyday goods are going up but at a much smaller scale.
More...


Oh I hear you and agree 100% ironchef. I posted this story the other day, not sure if you saw it. I eat at Luby's cafeteria a lot (cafeteria down here in Texas, maybe other places). Their main platter is a Lu-Ann platter - like a meat, two veggies and a bread. Waaaay back in the early 1990s it was $3.99. I pretty much use it as my guage for inflation. Over the years I watch it creep up. Its like over $10, $11.99 I believe now, and has been rising faster in price recently. The kicker is my girl got a Lu-Ann baked chicken the other day. And the chicken she got was like 30% smaller than its ever been. Its been the same sized bird for years, but they just now shrunk it, because they obviously concluded their sales would be dinged less if they reduced the bird size as compared to if they raised prices EVEN MORE. Hidden inflation, pure and simple.

But I feel this is NOTHING compared to what is to come. I'm talking inflation of biblical proportions here. I'm talking old testament. Real wrath of Gawd type stuff. It is going to get UGLY.
 
Spaghetti Code said:
I'm trying to piece together why the fed is pumping $80B a month into the economy
More...

Because the alternative will result in a complete collapse of all assets and civil unrest. No one who would have the balls and power to attempt a normalization would ever be appointed and the rest will simply continue to throw an ever increasing number of trillions until it no longer matters and everything collapses anyway. We are way past the point of return to any normalcy in rates or price discovery.
 
rallymode said:
No one who would have the balls and power to attempt a normalization would ever be appointed and the rest will simply continue to throw an ever increasing number of trillions
More...

Looking at the Balance sheet graph, there was a reduction from June 1st to about July 22. The market pulled back at first, but ended up rallying over this period. I don't think it follows that no one would be willing to slow down.
 
rallymode said:
Because the alternative will result in a complete collapse of all assets and civil unrest. No one who would have the balls and power to attempt a normalization would ever be appointed and the rest will simply continue to throw an ever increasing number of trillions until it no longer matters and everything collapses anyway. We are way past the point of return to any normalcy in rates or price discovery.
More...
How much longer do you think until it collapses anyway?
 
No one understands inflation. Not even the fed. The fed is there to keep credit markets liquor. That’s it. No one guesses right on macro.
 
You must log in or register to reply here.
Back
Top