dmp said:
He explicitly criticized the Fed for keeping interest rates low. He wants the Fed to raise rates.
I do too... Interest rates held too low for too long causes asset bubbles. I expect a few mini bubbles to be exposed when rates finally rise. We are expecting an interest rate tick up in Dec, but one raise a year for two years is far from restoring normal interest rates in a timely fashion.
One possible bubble I've been watching is cars and sub-prime car loans (yes there is such a thing). As they lend money to people to buy cars with long term loans there is a risk of getting upside down in the loans where borrowers will just walk away from the car no longer worth the loan balance.
I am still driving a '97 I bought new, and figure in maybe a year there will be some real bargains in the used car market (besides VW diesels). A ton are coming off lease next year, and when the used car prices start to soften, the outstanding loan quality goes to hell and it could cascade. Not as large as housing debt but not insignificant.
Then there is student loan debt, etc..
Huh? Wealth inequality is as old as time, and has been amplified by the current administration's asset inflation (to help underwater home borrowers). While this helped those few underwater mortgage holders it helped all owners of hard assets (like moi).
People need the opportunity to acquire merchantable skills (there is a difference between attending free college where they are taught to be snowflakes and learning marketable skills).
One thing I've heard mentioned is a focus on making it easier for small business start-ups... this could tilt the balance of power away from crony big business capitalism toward small businesses where more jobs come from.
I'm sure you aware of all this, but inflation is a complicated thing.
;D ;D Simple in concept, money supply vs things to spend that money on. Increase money supply more than goods increase and you get inflation (this is the actual work of the fed to manage money supply wrt goods). However there are also future expectations about prices. In a deflationary spiral people expect future prices to fall so hold off making purchases causing prices to fall... presto positive feedback loop and prices crash to zero killing economic activity.
If you want something complicated look at the components of money supply, we are way past just printing money to increase liquidity and now buying our own debt to completely distort market supply and demand pricing discovery when we are both buying and selling the same bonds, working both ends of the same transaction. Then don't get me started on money velocity (how fast it flows through the economy). Many moving parts that we have never juggled all at the same time before. I don't feel lucky but a little luckier than I felt last week. ;D
Higher GDP growth, if it leads to higher income to the masses, leads to inflation as people have more money to spend,
GDP by definition is "product" so growing GDP is making more stuff so disinflationary with a constant money supply. Central banks work to grow the money supply to keep up with GDP growth to keep prices stable (actually inflating slightly at a 2% rate). This does not automatically mean more wages but usually does. Productivity is an important factor that can modulate how much labor it takes to make a given amount of product. Productivity grew faster in the past than it is now, I hope it can grow again but we need a paradigm shift. Maybe AI in the cloud.
so they naturally compete for products with bigger wads of cash.
um no, this depends on how the fed and central banks manage money supply. This money supply is fungible (portable) so the net effect of all central banks increasing and decreasing supply matters.
It's taken years to start to see wages increasing after the great recession, which is now happening.
Yes wages are finally tightening... there are several moving parts to this too. Boomers retiring (lots of boomers retiring). More workers working part time to satisfy some of the perverse economic (dis)incentives of the ACA (like avoiding cost of full time employees). Logically it will take more people working part time than full time to accomplish the same production. There is definitely a scarcity of skilled workers reported in multiple industries. IIRC home builders can't find enough skilled worker for some of the new higher technology processes, etc.
Cutting manufacturing in China and Mexico with anti trade policies - where crap can be made with $5/hr labor, and forcing the same crap to be made with $25/hr labor here in the US - will also raise prices - i.e. trigger inflation.
That ASSumes an inflexible price-demand curve... Raise the price for $5 crap to $25 and less people will buy it. I think it was GM that just reported they were closing the car factory that made one of their low end cars because sales were so weak. They will probably address that market with a Mexican made or Chinese made version with lower sticker price.
Trump has already very vocally attacked Ford over their global manufacturing plans to make a low end car in Mexico, and that played well with voters in MI and OH. It stands to be seen how Trump will adjust after he learns more about the economics of those industries. It can save higher paying expensive car jobs to move the lower priced cars offshore. The joker in this deck is government fleet mileage standards which is the only reason Detroit sells those low end cars. Trump has a very steep learning curve and may negotiate some better deal for the more expensive US auto labor, we'll see he's the big deal guy... So far he has already walked back some of his more extreme (impossible) promises.
Interestingly, increasing prices of things people buy without much choice (medical care, housing, food etc) can actually lead to deflation of discretionary items as people's income gets used up by the stuff they have to buy and they can't buy the crap they don't need.
Unfortunately healthcare and medicine is often postponed or ignored if there is no money to pay for it. Unless a medical situation is imminent the patient will buy food and pay the rent first.
The purchasing power of the dollar is a different, but related, thing from inflation.
In fact the relative strength of a nation's currency can rise and fall following that nation's interest rates. The expectation is that the US raising interest rates next month "should" make the US dollar stronger. However this doesn't happen in a vacuum so all the other nations influence the dollar too. In fact most nations try to make their currency less valuable, to help their own exporters. Raising the US interest rate should hurt US exports.
Since Brexit the value of the UK pound has dropped a bunch which should help British manufacturers sell more exports. The other side of that same coin means their imports will cost more like that reformulated chocolate bar made to use less chocolate to preserve the old product price point in the UK .
You broached several pretty major economic topics and my brief responses are not a full comprehensive treatment. Thank you for a thoughtful discussion.
JR
