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USA and Economic Nuclear Option - 4%


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Spotted this originally on Medium a writer/blogging site.

https://medium.com/the-ascent/if-you-have-any-money-its-about-to-lose-a-lot-of-value-b78c6d2843f7

....and what really interesting is the article that it points to.

Whilst it is speculation, the idea the Fed might target inflation between 2% and 4% might have huge attraction right now

https://www.cnbc.com/2020/08/04/the-fed-is-expected-to-make-a-major-commitment-to-ramping-up-inflation-soon.html

“We believe that the Fed publicly would welcome inflation in a range of 2% up to 4% as a long overdue offset to inflation running below 2% for so long in the past,” said Ed Yardeni, head of Yardeni Research. 

 

Edited by Mikhail Liebenstein
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13 minutes ago, hughjass said:

Let us be honest it is about 4% in this country, food is getting silly . Weetabix about £3 a box , apples and oranges have shot up. 

Well the latest triple lock pension uplift is 3.9% isn't it? But of course boomer pensioners get protected from real inflation and everyone else is told it doesn't exist.

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3 hours ago, Mikhail Liebenstein said:

Spotted this originally on Medium a writer/blogging sie:

https://medium.com/the-ascent/if-you-have-any-money-its-about-to-lose-a-lot-of-value-b78c6d2843f7

....and what really interesting is the article that it points to.

Whilst it is speculation, the idea the Fed might target inflation between 2% and 4% might have huge attraction right now

https://www.cnbc.com/2020/08/04/the-fed-is-expected-to-make-a-major-commitment-to-ramping-up-inflation-soon.html

“We believe that the Fed publicly would welcome inflation in a range of 2% up to 4% as a long overdue offset to inflation running below 2% for so long in the past,” said Ed Yardeni, head of Yardeni Research. 

 

US inflation for the last 10 years (to 2019) (last column is average, rest are per month)

2009 0.0 0.2 -0.4 -0.7 -1.3 -1.4 -2.1 -1.5 -1.3 -0.2 1.8 2.7 -0.4
2010 2.6 2.1 2.3 2.2 2.0 1.1 1.2 1.1 1.1 1.2 1.1 1.5 1.6
2011 1.6 2.1 2.7 3.2 3.6 3.6 3.6 3.8 3.9 3.5 3.4 3.0 3.2
2012 2.9 2.9 2.7 2.3 1.7 1.7 1.4 1.7 2.0 2.2 1.8 1.7 2.1
2013 1.6 2.0 1.5 1.1 1.4 1.8 2.0 1.5 1.2 1.0 1.2 1.5 1.5
2014 1.6 1.1 1.5 2.0 2.1 2.1 2.0 1.7 1.7 1.7 1.3 0.8 1.6
2015 -0.1 0.0 -0.1 -0.2 0.0 0.1 0.2 0.2 0.0 0.2 0.5 0.7 0.1
2016 1.4 1.0 0.9 1.1 1.0 1.0 0.8 1.1 1.5 1.6 1.7 2.1 1.3
2017 2.5 2.7 2.4 2.2 1.9 1.6 1.7 1.9 2.2 2.0 2.2 2.1 2.1
2018 2.1 2.2 2.4 2.5 2.8 2.9 2.9 2.7 2.3 2.5 2.2 1.9 2.4

2019

1.6 1.5 1.9 2.0 1.8 1.6 1.8 1.7 1.7 1.8 2.1 2.3 1.8
2020 2.5 2.3 1.5 0.3 0.1 0.6 1.0

 

2009-2019 that's 1.6% but 1.8% if you exclude 2009. The 20 year average is 2.2%. I'm not sure what timescale he's looking at.

But if you look at 2009, big events tend to cause deflation and the Fed will be targeting 2-4% to give a margin of error to avoid that.

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FED does not have tools to directly control rate of inflation as they cannot purchase goods and services. In the past they could change interest rates and hope that inflation will move in desirable direction. Now, as interest rates are fixed at zero, they cannot use this tool anymore.

At the moment the only tool they are left with are asset purchases, which they actively use now to create asset bubbles for the joy of rich elites. However, the markets are becoming disconnected with the reality and increasing share of assets are held by governmental institution, which start resembling a communist economy.

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20 hours ago, ucnvpe0 said:

A warning shot for people to diversify.

Yes, that is exactly how my portfolio now looks.

I have a decent spread between World Developed, Developing, US, UK small cap, European and Asian stocks. I may want to now rebalance some of my recent US gains now, as whilst doing well  on the rebound, I am less certain about the Dollar than for a long time.

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5 hours ago, AAA said:

FED does not have tools to directly control rate of inflation as they cannot purchase goods and services. In the past they could change interest rates and hope that inflation will move in desirable direction. Now, as interest rates are fixed at zero, they cannot use this tool anymore.

At the moment the only tool they are left with are asset purchases, which they actively use now to create asset bubbles for the joy of rich elites. However, the markets are becoming disconnected with the reality and increasing share of assets are held by governmental institution, which start resembling a communist economy.

That is actually a very interesting point.

I guess that is a similar line to socialism for the rich (well the losses at least) and competition/capitalism for the poor.

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23 hours ago, hughjass said:

Let us be honest it is about 4% in this country, food is getting silly . Weetabix about £3 a box , apples and oranges have shot up. 

Strange as beer and spirits are lower now than ever.

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11 hours ago, Mikhail Liebenstein said:

That is actually a very interesting point.

I guess that is a similar line to socialism for the rich (well the losses at least) and competition/capitalism for the poor.

This was a big (and fair) accusation in the 2008 crisis due to bank bailouts.

 

2008 may be part of the reason why, this time, the "little guy" is being helped by furlough money.

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On 16/08/2020 at 08:37, AAA said:

FED does not have tools to directly control rate of inflation as they cannot purchase goods and services.

This.

The tail moves and claims to be wagging the dog.

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On 15/08/2020 at 17:48, hughjass said:

Let us be honest it is about 4% in this country, food is getting silly . Weetabix about £3 a box , apples and oranges have shot up. 

Inflation has been running at 5% or more for years...if you take whole living expenses in to account and not just the select and adjusted goods the government brazenly does.

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On 16/08/2020 at 13:58, Mikhail Liebenstein said:

Yes, that is exactly how my portfolio now looks.

I have a decent spread between World Developed, Developing, US, UK small cap, European and Asian stocks. I may want to now rebalance some of my recent US gains now, as whilst doing well  on the rebound, I am less certain about the Dollar than for a long time.

It sounds like you will do well out of the coming recession. How was your experience of 2008/9 and are you approaching it in a similar way?

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On 15/08/2020 at 17:48, hughjass said:

Let us be honest it is about 4% in this country, food is getting silly . Weetabix about £3 a box , apples and oranges have shot up. 

The trees are dripping with apples, who needs oranges....avoid branded products, buy in bulk and keep away from shrinking products.?

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21 minutes ago, ucnvpe0 said:

It sounds like you will do well out of the coming recession. How was your experience of 2008/9 and are you approaching it in a similar way?

2008/9 was served relatively well by collapsing Sterling. That said, I had a much smaller fund then, so contributions were relatively more important then as I could buy cheap shares. 

 

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9 minutes ago, winkie said:

The trees are dripping with apples, who needs oranges....avoid branded products, buy in bulk and keep away from shrinking products.?

Having gone planting crazy (well actually the wife) in early lockdown, I am now enjoying abundance of tomatoes, cucumbers, lettuce, cauliflower, aubergines, spinach, beans, kale. 

Interestingly the last 2 months I've only needed to shop once every 2 weeks off the back of that. 

Tomatoes are the best, made fresh tomato and lentil soup yesterday, really tasty!  Normally I'd never buy that many tomatoes, but with the garden bounty you can make some great reductions. 

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19 minutes ago, Mikhail Liebenstein said:

Having gone planting crazy (well actually the wife) in early lockdown, I am now enjoying abundance of tomatoes, cucumbers, lettuce, cauliflower, aubergines, spinach, beans, kale. 

Interestingly the last 2 months I've only needed to shop once every 2 weeks off the back of that. 

Tomatoes are the best, made fresh tomato and lentil soup yesterday, really tasty!  Normally I'd never buy that many tomatoes, but with the garden bounty you can make some great reductions. 

Sounds good.....fresh and local always much tastier than mass produced .....back to basics.?

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On 16/08/2020 at 08:37, AAA said:

At the moment the only tool they are left with are asset purchases, which they actively use now to create asset bubbles for the joy of rich elites. However, the markets are becoming disconnected with the reality and increasing share of assets are held by governmental institution, which start resembling a communist economy.

Yep...

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On 17/08/2020 at 09:18, Locke said:

Inflation has been running at 5% or more for years...if you take whole living expenses in to account and not just the select and adjusted goods the government brazenly does.

Correct the broken thermometer they use is not accurate. 

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They'll create stagflation rather than allow deflation to run its course. In their eyes it's the lesser of 2 evils. It's been estimated in order to simply offset deflation, the FED will have to print 10 trillion dollars and that's before they create inflation... deflation will win out, it's just a question of when.

Printing money is not a substitute for productivity, because you can't summon value out of thin air... it's just another philosopher's stone.

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8 hours ago, hughjass said:

Winkie, the trees are dripping with apples but the prices in the shops are higher than ever. 40p for an apple.

...made me think of when in Spain walking, there were oranges and lemons in abundance, many falling on the ground to rot......in the local supermarket selling a lemon for 40 euros......excess waste sitting next to insufficiency at a cost. ;)

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1 hour ago, Freki said:

I kinda doubt that 10 trillion would create 2% of inflation, I think it will be more like 100% if they go so nuclear

The FED's balance sheet has already ballooned from $4 trillion in mid-March to roughly $7 trillion. Where's the inflation?

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