Is Inflation Going To Cripple The Economy ?

[Dave Hess]

Quote
”Now I use every minute of my sick time, every day of vacation, every cent of 401k match, etc. I suggest being highly selfish in regard to your employers - almost none of them actually care about you. You’re a part number.”

You should have been doing that from day one.

 

[CharlesInCharge]

The truth is that your numbers are way off.

How so?
I'm an hobbyist economist with significant economics training. I also do all the earning and buying in my household. I also run a business.

So I see the costs of everything and wages of many professions.

What I wrote is very representative of what is going on. This is a topic of conversation with everyone I know. Prices of food, energy, durable goods, vehicles, etc. soaring and few people are making more or much more to offset it. It's not just here but globally.

I had a zoom call with a British friend. She was almost in tears discussing the effects of inflation, soaring prices etc. wondering how she is going to survive. Her home energy costs have tripled to pay for all of the government waste.

 

[spasm3]

People stop buying stuff when it gets too expensive, or the costs of other things erode buying power.

The $1600 cost share that my HDHP is going to cost us this year is going to erode what I spend on other things, for example. Will that be food in restaurants? US made tools? A new computer? TBD.

Exactly.
The sad part is, a lot of charities, especially those smaller ones that are not tied to corporate donors, will suffer as the public has less spending power.

 

[DwightFrye]

Some inflation is a normal part of the economy over a period of time. Some inflation is caused by natural disasters and other unforeseeable and unpreventable events. Some inflation is a direct result of governmental policies, usually made by unqualified and incompetent elected and appointed officials, most with absolutely no education and background in financial matters. That is the worse kind. And guess which kind we are about to have hit us like a ton of bricks ?

Hopefully people will realize how this is happening very quickly and will take corrective measures since the people responsible will deny all blame.

 

[Wolf359]

A 20% raise at work does not pay for the 20% increase of average goods and 50% increase in housing costs, vehicles, appliances, etc.

Example: A bump from $15 to $20 per hour is 25% increase, representing an annual salary increase from $30,000 to $40,000. A typical American salary. So that American has $10,000 more, minus taxes, so really about $7k more.

New cars have jumped tens of thousands of dollars. Used cars have effectively doubled in prices. Groceries are up 5-50%. Most home goods up drastically. Fuel has nearly doubled since the election.
Rents and mortgages for houses have skyrocketed across the nation with housing prices in some markets doubling, representing tens or hundreds of thousands of dollars more in 1 year.

Anyone care to explain how the working class is somehow doing better making a few grand more per year when the price of nearly everything is drastically up?

The truth is that the inflation we are experiencing kills savings, kills the working lower and middle class, kills anyone not already in a owned home or with a fixed interest mortgage and able to pay for it. The rich will do fine. Everyone else gets steamrolled.

Haven't seen used car doubling in price, maybe if you're buying 1k beaters but not in the 5-10k range, those are more like 25-50%. Gas might be more like 50%, but gas prices have gone up and down independent of inflation. All real estate is local and while housing is up in some markets, it's down in others. Single families and multifamilies are in demand but not as much for condos. Rents are actually down around me as people fled the city for the suburbs.

 

[PandaBear]

problem is when they get a raise everthing goes up...so how do you come out ahead??? you dont

The fundamental reason we want an inflation is, the real cost as a percentage of the market economy of everything should go up and down based on reality (i.e. new technologies that render old way of doing things obsolete so price should go down). However the humanity side of things would not allow people to be abandoned and treated like trash when they get a salary decrease when they are doing a good job year after year. So what is the solution? Inflation, and only increase the pay and price based on the market demand and supply.

Harsh reality? Yes it is pretty much what it is.

 

[CharlesInCharge]

Haven't seen used car doubling in price, maybe if you're buying 1k beaters but not in the 5-10k range, those are more like 25-50%. Gas might be more like 50%, but gas prices have gone up and down independent of inflation. All real estate is local and while housing is up in some markets, it's down in others. Single families and multifamilies are in demand but not as much for condos. Rents are actually down around me as people fled the city for the suburbs.

My used vehicles have all gone up by a factor of at least 25% and some 100%, and they are all in the $5000 to $50,000 range. This isn't my opinion, there's dozens of threads on this very forum of people getting far more today for their used vehicles purchased just a few years ago. E.g., they bought it for $20k 4 years ago, put 40,000 miles on it, and now sell it for $25-30,000. That's a 25-30% increase, on a vehicle 4 years older with more miles. That's a drastic increase in price.

Your point about "$1k beaters" - who do you think this hurts the most? The poor, and the working class.

Who do you suppose 50% increases in grocery bills (and yes, that is the reality. I know, I do all of the shopping) hurts. The poor and working class.

Not the rich elite class living in Boston, DC, NYC, San Fran, etc. isolated from reality. To them it's just a number on paper, "Oh, I lost $1,000,000 in my $4,000,000 portfolio...".

 

[PandaBear]

The cost of many things I have noticed up 20 %. Our wages at my company was just increased 3 to 5 dollars a person. This did help keeping some people that were browsing other options. I think this year will be the biggest inflation jump we have ever seen

I don't think so. We have scaled down a major military operation that leads to such borrowing / money printing / inflation (they are the same thing). The history of hyper inflation is usually military spending + borrowing with the speculation that you will win + you lose the war + heavy foreign debt to the enemy. We cut off the military spending, we are borrowing, we don't have heavy foreign debt they can demand payment (we have the strongest military and they can't do much about our debt, so 50% of them will be inflated away), and we don't have a war that damaged our domestic infrastructure but the wars are always in foreign lands.

So no, our inflation is bad but not going to be worse than during the Vietnam War era, we may be slightly better than that but definitely not the worst we have ever seen.

 

[CharlesInCharge]

I don't think so. We have scaled down a major military operation that leads to such borrowing / money printing / inflation (they are the same thing). The history of hyper inflation is usually military spending + borrowing with the speculation that you will win + you lose the war + heavy foreign debt to the enemy. We cut off the military spending, we are borrowing, we don't have heavy foreign debt they can demand payment (we have the strongest military and they can't do much about our debt, so 50% of them will be inflated away), and we don't have a war that damaged our domestic infrastructure but the wars are always in foreign lands.

So no, our inflation is bad but not going to be worse than during the Vietnam War era, we may be slightly better than that but definitely not the worst we have ever seen.

What is our national debt today?
What was our national debt during Vietnam?

Real numbers and as a % of GDP please.

 

[PandaBear]

Elon Musk is a bright spot. There are others too.

The steam engine/railroad, telegraph/telephone, light bulb, phonograph/cameras/movies, airplane, rocket, nuclear, computer, internet were all industrial related booms that fueled amazing growth.

It's possible we will see another such cycle, I just don't know what it could possibly be. If we do, all bets are off.

I would say it is work from home.

We spend a lot of resources commuting, and the infrastructure of commuting, and the skyrocketing cost of putting as many people close to the workplace as possible. Now all of a sudden a lot of jobs can be done at home we will have a huge re-alignment of who can do what at where, and a lot of cost rebalancing can be done to make our economy more efficient. Roads are used more efficiently, housing usage is more efficient, way less fuel for commuting, people are not forced to relocate to take ideal jobs (say 1 of the 2 working adults need to quit to accommodate the other to get the ideal job), people having more choice of who to work for when they don't want to commute or pay too much for housing nearby.

We also free up a lot of potential candidates and locations in different countries but in the same timezone. All of a sudden Canadians can work for US and stay in Canada, daytime workload data centers can move to a desert with cheap solar energy, etc.

 

[JeffKeryk]

It drives me nuts when people win the life lottery, such as stumbling on a very unique time or opportunity that is nearly impossible to replicate, and then boasting about how easy it was to get rich. It's only opportunity if you already own the high priced homes, FYI.

Who said it was easy? In my case, it was working 50+ hours a week, 6 years of graveyard, going to Community College, spending Saturdays in the computer lab. And caring for my parents. Certainly no vacations! Driving beater cars. When I started making a little more, I drove a used Toyota 4 banger Pickup. When I bought my 1st property, it took ever penny I could muster and moved in with nothing. My employeers paid most of my tuition. I took advantage of stock plans and 401K matching as best as I could. I got my 1st degree at 40.
I knew I had thrown away most of my life and thought it was too late for me. And I knew I had 1 person to blame.

By the way, I have never bought a lottery ticket in my life. I am terrified of gambling. I know the other side of life and I never wanna go back there.

 

[PWMDMD]

We just need a few more rounds of stimulus checks, and everything will be peachy.

Two out of 3 stimulus checks were issued in 2020 and while they've been popular in both parties I never seem to get one regardless of who is in charge. It'd really help fund my next vacation...

 

[JeffKeryk]

Well one thing is for sure, wages are not keeping up with home prices, the higher the home prices get, the more people are just going to live with roommates...... NYC style, three guys sharing an apartment.....just to make rent.

If home prices rise 30% on a 100k home, that is 30k, an entire years worth of wages, so as home prices increase, you are getting further and further behind, thus a lot of people have left the workforce giving up on the "American dream".

and people like me that make 30k are getting screwed at purchasing power. I'm holding off buying a new vehicle for AT LEAST two years! Right now they are selling at or above MSRP, used car market is crazy, and with all the component/experienced employee shortages, I am assured these vehicles sitting in baseball fields waiting on chips will have quality control problems!!!

I would save for a down payment instead of buying a new car. It worked for me, anyways.

 

[CharlesInCharge]

I bought my 1st property, it took ever penny I could muster and moved in with nothing. My employeers paid most of my tuition. I took advantage of stock plans and 401K matching

Bingo. Some smart hard work, but a lot of luck. You hit a lot of "lotteries" that had less to do with hard work and more to do with luck.

I know people, including MYSELF, who worked just as hard or harder (I have 3 advanced degrees), but markets moved against others and myself. Your story of caring for elderly parents, scraping by, over-leveraging yourself to invest in a home are not unique. Nearly everyone I know has similar stories. Very few result in 8 cars including a bunch of high end ones... Most are still scraping by, but could tell your exact story except the parts where the unbelievably soaring markets in certain areas allowed millions of dollars in profits for doing little more than picking a lottery number.

You got lucky with an employer to pay tuition. But consider there are over $1 TRILLION in student loans out there with employers not paying them off. My then employer, the Army, did not pay my student loans off. Not until a few classes after me, so my junior peers did receive $65,000 of student loan repayment, but due to poor timing, I did not. Same exact job. In 2008 they did not repay, but by 2010 they did. That still angers me. Nothing involved but lucky or unlucky timing.

At one time employers paid pensions. Now they do not. At one time, college was affordable. Now it is not. And so forth. Just luck of the draw.

You apparently hit the housing market at the right time. There is almost no ability to buy a house at a discount today. You got lucky. I bought a big beautiful brand new house in 2009 in a market that appeared to be growth. The combination of various market forces meant that I sold it at a loss after it nearly bankrupted my a decade later.

 

[Rmay635703]

Inflation, rising interest rates, housing bubble, debt bubble, etc... might hurt economy.

If the economy is normal wage earners gaining ground it’s been stagnant since the first jobless recovery in 2001

Had a crash in 2008 without a recovery that continued without any significant change after that.

Inflation does both help and hurt depending on where and what you are doing
Housing and stock bubbles realistically don’t matter since most wage earners haven’t participated in either bubble in any meaningful way.

Lower land and property values would only help the majority of hourly employees but sadly unlike every other country the ultra wealthy are allowed to run rampant and buy up all the land and properties driving inflation on food and resources



If we were to do what every other country does and place limits via taxes and bans on certain practices we could eliminate this manipulation, driving market failure for profit.

That is why we need glass segal, places like Zillow invest in homes to extract investor dollars and don’t give a F if they loose other peoples cash, nothing was learned from 2008,
it’s not a problem with having better borrowers when the system drives entities to do immoral activities to extract money from investors knowing full well it’s gonna fail.

 

[CharlesInCharge]

I would save for a down payment instead of buying a new car. It worked for me, anyways.

You keep referencing a brilliant home buying strategy. Houses in my market have increased by 50%. That turns a $200,000 house into a $300,000 house. Over the life of a 30 year loan, that's something like an EXTRA $500,000 for the same house.

How does a working person manage that?

When did you buy your properties and in what zip code? I'm going to make an educated guess, you got extremely lucky in some briefly depressed but quality area, scooped up a property at a rock bottom price during the last crash, and now have made massive equity valuation as the market rebounded and soared.

Your same home buying strategy does not apply in 2021. There are no foreclosures and discounts. There are housing shortages, for a variety of reasons.

 

[JeffKeryk]

Bingo. Some smart hard work, but a lot of luck. You hit a lot of "lotteries" that had less to do with hard work and more to do with luck.

I know people, including MYSELF, who worked just as hard or harder (I have 3 advanced degrees), but markets moved against others and myself. Your story of caring for elderly parents, scraping by, over-leveraging yourself to invest in a home are not unique. Nearly everyone I know has similar stories. Very few result in 8 cars including a bunch of high end ones... Most are still scraping by, but could tell your exact story except the parts where the unbelievably soaring markets in certain areas allowed millions of dollars in profits for doing little more than picking a lottery number.

You got lucky with an employer to pay tuition. But consider there are over $1 TRILLION in student loans out there with employers not paying them off. My then employer, the Army, did not pay my student loans off. Not until a few classes after me, so my junior peers did receive $65,000 of student loan repayment, but due to poor timing, I did not. Same exact job. In 2008 they did not repay, but by 2010 they did. That still angers me. Nothing involved but lucky or unlucky timing.

At one time employers paid pensions. Now they do not. At one time, college was affordable. Now it is not. And so forth. Just luck of the draw.

You apparently hit the housing market at the right time. There is almost no ability to buy a house at a discount today. You got lucky. I bought a big beautiful brand new house in 2009 in a market that appeared to be growth. The combination of various market forces meant that I sold it at a loss after it nearly bankrupted my a decade later.

My original point was, Silicon Valley is an increible place, full of opportunity. But there is no magic.

 

[FZ1]

All I can tell you is this inflation ain't "Transitory".

 

[JeffKeryk]

You keep referencing a brilliant home buying strategy. Houses in my market have increased by 50%. That turns a $200,000 house into a $300,000 house. Over the life of a 30 year loan, that's something like an EXTRA $500,000 for the same house.

How does a working person manage that?

When did you buy your properties and in what zip code? I'm going to make an educated guess, you got extremely lucky in some briefly depressed but quality area, scooped up a property at a rock bottom price during the last crash, and now have made massive equity valuation as the market rebounded and soared.

Your same home buying strategy does not apply in 2021. There are no foreclosures and discounts. There are housing shortages, for a variety of reasons.

I never said the word brilliant. My point is, don't give up. You gotta try. Start somewhere.
My 1st property was a tiny 2 bedroom condo with a carport in Campbell, CA. Me and my old PU and 2 cats moved in. I paid $90K, 5% down, 10% loan. Late 1980's. I rented the other bedroom to help make my payments. Watched every penny.
I sold it 2 years later, made a little money, and was so happy to not be paying rent any more. Rent, to me, is simply paying someone else's mortgage. I was in the game. A game that seemed beyond my wildest dreams.

 

[doitmyself]

Quote
”Now I use every minute of my sick time, every day of vacation, every cent of 401k match, etc. I suggest being highly selfish in regard to your employers - almost none of them actually care about you. You’re a part number.”

You should have been doing that from day one.

I'm towards the end of my very unique 45 year career, salaried, and I tend to be a "pleaser" type. I had a period when I believed my workplace (a few select supervisors) appreciated my devotion and extra effort. I think that has changed and the "part number" comment applies more.

I have mostly followed advice I received 2 years into my career: "Work hard to please yourself and most other aspects will fall in line. Working hard to please others almost never results in satisfaction."

Still, it is a bit numbing to accept the "part number" aspect of one's career.