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Inflation

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If my limited studies of economics is valid - the result of MASSIVE government spending, government debt and massive increases in currency is SUPER MASSIVE inflation.   According to the Noble Prize winning economists, Milton Friedman, government subsidies and currency increases is the cause of inflation.  However, the cycle is about 2 years before the effects take hold.  Friedman compares subsidies to alcohol and drug addictions.  That there are some benefits in the beginning but to maintain the same effects one must indulge more and more and always the ill effects come later.  The more one indulges the worse will be the long term outcomes.  Friedman also suggest the the fix of inflation is similar to fixing addictions.  That in the beginning of the fix - thing are difficult and painful but the long term benefits make the process worth it.

According to such theory - we should start to see inflation in about a year -- corresponding to the initial COVID subsidies but if Friedman is correct the last round of subsidies and how the "emergency" funds are spread out - we will see increasing inflation for some time.  And if the current unemployment continues (especially the layoffs in the petroleum and energy section) - we will enter what was coined in the 70's as stagflation.  

I would suggest that those that wish to get through all this begin preparations NOW.

1. Get out of debt - especially credit card and revolving debt.

2. Establish an emergency fund and supply of essential things like food.

3. Have a backup plan for changes that could effect your primary plan.

4. Build a circle of friends you can trust and rely on for help.   I suggest the best way to do this is through service.  

Hmmmmmmmm - now that I think about this - I am sure I have see all this before!

 

The Traveler

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12 minutes ago, Traveler said:

If my limited studies of economics is valid - the result of MASSIVE government spending, government debt and massive increases in currency is SUPER MASSIVE inflation.   According to the Noble Prize winning economists, Milton Friedman, government subsidies and currency increases is the cause of inflation.  However, the cycle is about 2 years before the effects take hold.  Friedman compares subsidies to alcohol and drug addictions.  That there are some benefits in the beginning but to maintain the same effects one must indulge more and more and always the ill effects come later.  The more one indulges the worse will be the long term outcomes.  Friedman also suggest the the fix of inflation is similar to fixing addictions.  That in the beginning of the fix - thing are difficult and painful but the long term benefits make the process worth it.

Pretty much, yes. 

Any amount of increase in the money supply will theoretically cause some level of inflation.  The way it is currently done is that the Federal Reserve prints more money according to spending demand.  This is done by a variety of banks.  ALL banks will borrow money from the Fed.  This includes the US Treasury.  When borrowing, the bank must have a fraction of actual hard currency in a vault somewhere.  So, when borrowing, the Feds must print a fraction of that amount.

It the level of money being increased is proportional to the goods and services available, then it doesn't necessarily cause inflation.  The problem with 2020 was that thanks to COVID, the availability of goods and services plummeted, as the money supply skyrocketed.

So, it isn't the "spending" per se.  It is that we had to borrow in order to spend in the first place.  This was the economic problem.

12 minutes ago, Traveler said:

According to such theory - we should start to see inflation in about a year -- corresponding to the initial COVID subsidies but if Friedman is correct the last round of subsidies and how the "emergency" funds are spread out - we will see increasing inflation for some time. 

That may be.

12 minutes ago, Traveler said:

And if the current unemployment continues (especially the layoffs in the petroleum and energy section) - we will enter what was coined in the 70's as stagflation.  

That may very well be.  But the petroleum industry is actually looking up this year.  It was looking up last year.  But it takes a good 6 months for the economic machinery to get projects off the ground.

When Biden nixed the Keystone Pipeline, the average worker was hurt for a little while. But elsewhere in the industry, the movers and the shakers realized that they had to do a whole lot of OTHER construction to make up for it.

So, all my clients are seeing this becoming a banner year.  And of course, the media will say it was all because of Biden.

We've certainly increased the money supply.  And that SHOULD cause some massive inflation.  But if the economy booms enough to counter it, then inflation will be very small.  My guess is that the spending between all the relief bills will NOT be mitigated by the booming economy.

I predict that while some numbers will look really good, other numbers will be really bad.  This will result in a greater gap between economic classes.

I know that conservatives usually take the position that it doesn't matter what someone else makes compared to us as along as we're still doing better.  That is true.  But this "good" can be nullified if the distribution isn't smooth.  If large gaps appear in income/net worth levels among the population, then it becomes an indicator of "lack of vertical mobility."  And if that indicator proves true, then we're going to hurt.

12 minutes ago, Traveler said:

I would suggest that those that wish to get through all this begin preparations NOW.

1. Get out of debt - especially credit card and revolving debt.

2. Establish an emergency fund and supply of essential things like food.

3. Have a backup plan for changes that could effect your primary plan.

4. Build a circle of friends you can trust and rely on for help.   I suggest the best way to do this is through service.  

Hmmmmmmmm - now that I think about this - I am sure I have see all this before!

Well, some of this is exactly what the Church teaches in the financial preparedness class.

And some of it is also Dave Ramsey's advice.

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1 hour ago, Traveler said:

1. Get out of debt - especially credit card and revolving debt.

2. Establish an emergency fund and supply of essential things like food.

Counter guidance

1. don’t pay off any debt, but rather Get in MASSIVE debt because it will be a LOT easier to pay off once hyper inflation hits

2. Instead of a fund, save of tangible emergency things because inflation will destroy that fund

 

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1 hour ago, Traveler said:

If my limited studies of economics is valid - the result of MASSIVE government spending, government debt and massive increases in currency is SUPER MASSIVE inflation.

You'd think.   But the COVID trillions aren't exactly the first time there have been trillions of dollars just created out of thin air and pumped into the economy.

image.png.5b5aefdb4b3b6d73a5e77752034db609.png

When it comes to inflation, 2008-10, 2011, and 2013/14 weren't exactly horrible years if soul crushing inflation where we all learned our lesson and the wheels came off the country and all that. 

image.png.ef22e8104bbf9bd65af2ac41eb8fc03a.png

 

I mean, I'm as surprised as anyone.

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50 minutes ago, Fether said:

Counter guidance

1. don’t pay off any debt, but rather Get in MASSIVE debt because it will be a LOT easier to pay off once hyper inflation hits

2. Instead of a fund, save of tangible emergency things because inflation will destroy that fund

 

1. The best debt is no debt.

2. True. Money has no inherit value...it only represents potential services and/or material items you could have. It is worthless if you can't spend it, or if others devalue it. It is best to diversify and not have all your eggs in 1 basket. Anything that I can buy now that will last, I buy now, because prices are likely to go up, the value of the dollar will likely go down, and the supply of items is finite. Just look at toilet paper and ammunition. Thankfully, the former has rebounded. :)

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1 hour ago, Fether said:

Counter guidance

1. don’t pay off any debt, but rather Get in MASSIVE debt because it will be a LOT easier to pay off once hyper inflation hits

2. Instead of a fund, save of tangible emergency things because inflation will destroy that fund

In other countries that have experienced true hyperinflation, they tend to "re-index" all debts in favor of the lender.  So, the bank will get the same "value" that they expected prior to the inflation effect.

But if you can pay it off in a time of "high" inflation which is just low enough to NOT trigger the re-indexing, that would be the best tactic.  But the question is: How do you know when the perfect time is?  Will there even be a period of high inflation that is long enough to make a big difference before it turns into hyperinflation and the re-indexing is triggered?

There really isn't all that much tangible stuff that you can sell to make a living.  And don't forget that as long as big corporations exist, the funds that invest in them will still be there too.

If the corporations are gone, the only thing that will save you is a garden/farm.

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1 hour ago, Carborendum said:

In other countries that have experienced true hyperinflation, they tend to "re-index" all debts in favor of the lender.  So, the bank will get the same "value" that they expected prior to the inflation effect.

Sounds vastly illegal (says the non-lawyer).

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In a drawer somewhere, I have a 100 million dollar Zimbabwean note.   Bought it off of eBay back in 2008 for two bucks.   A few months later, I bought a 10 billion dollar Zimbabwean note off eBay for two bucks.   A few months after that, I saw a news article that the company that prints currency for various nations was going to stop doing business with Zimbabwe, because it was just becoming insulting to be associated with them.

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58 minutes ago, Carborendum said:

Illegal / legal is whatever the government says it is.

If I contract a debt for $100, how can a government of free people redefine that debt and claim that I now owe $1000?

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Well, name a single country that has suffered hyperinflation, where said hyperinflation was not directly caused by some horrible action by a horrible government...

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2 minutes ago, NeuroTypical said:

Well, name a single country that has suffered hyperinflation, where said hyperinflation was not directly caused by some horrible action by a horrible government...

No doubt true. But we in the US style ourselves as "the land of the free and the home of the brave". If we sit and watch while the government devalues our money and then reassigns debt, we are neither free nor brave. We will not be free exactly because we are such cowards.

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8 hours ago, Carborendum said:

....

That may very well be.  But the petroleum industry is actually looking up this year.  It was looking up last year.  But it takes a good 6 months for the economic machinery to get projects off the ground.

When Biden nixed the Keystone Pipeline, the average worker was hurt for a little while. But elsewhere in the industry, the movers and the shakers realized that they had to do a whole lot of OTHER construction to make up for it.

So, all my clients are seeing this becoming a banner year.  ........

If you have not noticed the price of refined gas has increased 30% in the last two months since the change in political leadership.  We will see if this is a short term or longer term adjustment as the year progresses.   I recently retired from the automation and robotics industry and I am well aware that the cycle of changes to supply chain manufacturing have (at minimum) a year cycle to bring changes on line to supply and manufacturing cycles.   If there are no other changes in supply chain - meaning that manufacturing has no planned schedule changes - that any increase in petrol costs will immediately affect bottom line costs that will either be absorbed in lessor profits or the cost of products must increase.   Often in my consulting business I would address automation retooling and changes in supply chain by informing my clients that supply chain manufacturing can be done fast, cheep (meaning within budget) and with minimum future add ons or corrections and that the good news for them is that they get to pick two out of the three that will correspond best to their business model. 

The most alarming economic impact I saw during the COVID shutdowns was the disruption in retail supply chain that resulted in products being unavailable.    Prior to 2000 most manufacturing maintained warehouses of needed supply chain products.  Currently all large scale productions rely on just in time supply chain operations.   I am unaware of any workable solutions to prevent hipper inflation to the simple supply - demand economics when desired products become unavailable.   But as an expert in Chaos Theory modeling the possible outcomes (leading to economic collapse) are not promising. 

 

The Traveler

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20 hours ago, Traveler said:

If my limited studies of economics is valid - the result of MASSIVE government spending, government debt and massive increases in currency is SUPER MASSIVE inflation.   According to the Noble Prize winning economists, Milton Friedman, government subsidies and currency increases is the cause of inflation.  However, the cycle is about 2 years before the effects take hold.  Friedman compares subsidies to alcohol and drug addictions.  That there are some benefits in the beginning but to maintain the same effects one must indulge more and more and always the ill effects come later.  The more one indulges the worse will be the long term outcomes.  Friedman also suggest the the fix of inflation is similar to fixing addictions.  That in the beginning of the fix - thing are difficult and painful but the long term benefits make the process worth it.

According to such theory - we should start to see inflation in about a year -- corresponding to the initial COVID subsidies but if Friedman is correct the last round of subsidies and how the "emergency" funds are spread out - we will see increasing inflation for some time.  And if the current unemployment continues (especially the layoffs in the petroleum and energy section) - we will enter what was coined in the 70's as stagflation.  

I would suggest that those that wish to get through all this begin preparations NOW.

1. Get out of debt - especially credit card and revolving debt.

2. Establish an emergency fund and supply of essential things like food.

3. Have a backup plan for changes that could effect your primary plan.

4. Build a circle of friends you can trust and rely on for help.   I suggest the best way to do this is through service.  

Hmmmmmmmm - now that I think about this - I am sure I have see all this before!

 

The Traveler

I have heard that if we counted inflation the same way we did in the late 70s, inflation today would be just as bad if not worse as it was during the Carter years.  There are some economists that see it only getting worse for the present than better.  Housing and food prices over the past year already reflect this trend (costs have risen dramatically over the past 12 months) and are seen to continue.  I am blessed that those of my children that have chosen to buy a home have bought their homes at this point, but I'm not sure how my grandchildren will cope.  I have a few that are now adults and none of them have been able to afford a house to buy.  One is even a full-time RN, but is still living at home. 

From what I've heard, it is only going to get worse, at least in the near term.

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