It looks like you're new here. If you want to get involved, click one of these buttons!
The survey asked the experts whether they agreed or disagreed with the following statement: “The current combination of US fiscal and monetary policy poses a serious risk of prolonged higher inflation.” If so, how strongly and with what degree of confidence.
Of the panel’s 43 experts, 38 participated in this survey, and the results indicate considerable uncertainty and differences in views. Weighted by each expert’s confidence in their response, 33% agree with the statement, 36% are uncertain, 26% disagree, and 4% strongly disagree. The short comments that the experts are able to include when they participate in the survey provide more details on different perspectives.
© 2015 Mutual Fund Observer. All rights reserved.© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Socialist fiscal insanity is good, though, and would make a comedy bumpersticker.
The Real Cost of U.S. Debt Is Nearer the Floor Than the Ceiling
Your last entry reminds me of Ray Dalio's presentation on "How the Economic Machine Works". I recall one quote form his presentation that goes something like:
"One man's debt (liability) is another man's income (asset)"
Debt creates what he describes as the long and short term debt cycles. Individuals need to service (repay) there debt (Principal & interest) to the borrower (usually the bank). An arrangement exists whereby the government injects liquidity into the system at a very low interest rate (overnight bank rate). The bank in turns loans this liquidity (money) to individuals and corporations so that they can receive and offer goods and services.
The money loaned to individuals and corporations needs to be repaid to the bank (both principal and interest). The money borrowed by the bank is only repaid to the government to the extent that it is borrowed and the banks only outlay is the overnight rate of interest. The government repo's (soaks up) any liquidity (borrowed money) that was not used by the bank to extend credit to credit worthy borrowers.
If credit worthy borrowers add value (labor, innovation, good & services, demand for financial assets) they are able to both pay back the bank and grow the economy. It all works.
When borrowers default, the systems grinds to a halt.
I'm sure you understand all of this, but too many (myself included) Ray Dalio does a great job explaining it all (see video below).
Getting back to inflation. It seems a strong economy should both inflate (have elements good inflation) and deflate (have elements good deflation) simultaneously (would be nice).
IMHO, Biden's bill should be looked at through that lens.
When is Inflation good?
When is Deflation good?
Ray Dalio's Presentation:
Moreover, I would add, as you mentioned, that depending on one's perspective inflation isn't all bad, depending on the kind, size and duration of inflation. A lot of money managers dread wage inflation, and it may be the source of real broader inflation. But I think wages for average Americans have stagnated for decades on a real inflation-adjusted basis and have actually declined since the 1970s for the lowest paid workers. Some wage inflation even if it filtered into the rest of the CPI would be a good thing for many people. A higher minimum wage is absolutely in order.
But the thing I would stress is that no one really knows whether the current economic policies will bring about a period of extended high inflation, and the fearmongering from the rightwing has less to do with economic reality than concerns about having to pay workers more and their taxes potentially going up. The truest response in perhaps the most unsettling one: We just don't know. In fact, inflation from my perspective may be more influenced by Covid-inspired global supply shortages than monetary or fiscal policy.
Interestingly, from a leftwing MMT perspective you can hear some very different viewpoints from the prevailing ones in the original survey in this interview with Stephanie Kelton who wrote The Deficit Myth: https://dissentmagazine.org/online_articles/monetary-mythbusting-an-interview-with-stephanie-kelton
I get all “choked up” whenever I hear the party of tax cuts for the wealthy decry “saddling our children with mountains of debt”. Sure. You bet! Bleeds one’s heart. Debt can be good or bad. Most of us wouldn’t have been able to finance a home without debt. Many continue to refinance, putting the proceeds to other productive uses and keeping the economy growing. Muni bonds have financed schools and infrastructure for years, affording everyone a better standard of living. Don’t hear anyone hollering about munis.
For as long as I’ve followed the economy (a long while) there’s been a “tug-of-war”, so to speak, between the diametrically opposite fears of deflation and inflation. That concern continues to this day with a recent post by @bee raising the deflation specter. And now, here we’re discussing inflation. Most would agree that deflation is the tougher problem to deal with. And, by most accounts, we came perilously close to falling into a deflationary sink-hole during 2007-2008. Let’s not forget that the Depression years were a deflationary period. One less desirable outgrowth of that lovely period was the rise of Nazism in Germany and other parts of Europe.
“Inflation can be good or bad.” Whatever failings they may have, the folks at the Federal Reserve aren’t dumb. Their stated goal for years has been achieving a 2% inflation target. And they’ve made clear they’d rather over-shoot than under-shoot. While they may not express it openly, they’re scared to death of the global economy tipping backwards into a deflationary spiral and the pain to society that would bring on. Is higher inflation coming? I think so. Invest accordingly.