Inflation

[over9k]

Yep it's going to happen, the question is how much and for how long. Ultimately interest repayments will be the limiting factor for rate rises, unless central banks are actively trying to cause a deflationary enviornment/recession...

This is the rock/hard place they now find themselves in - it's no longer inflation vs recession, it's how much stagflation do you want?

They are well & truly boxed into a corner here and they know it.

 

[againsthegrain]

I think generally most people will be ok at 5 or 6% rates, yes some that bought at the top, over leveraged and lied will struggle but it comes down to the good of the many over the good of the few. Wipe out everybody with inflation or wipe out 10%.. your a bad guy either way chose your poison

 

[divs4ever]

the problem ISN'T mortgage repayment rises , it will be all the OTHER cost rises , power , fuel , food , government fees and charges which will be running well ahead of mortgage repayment increase AND there is a fair chance property values will drop ( much like a margin call on your share portfolio )

 

[over9k]

Good comment by Larry Summers I just saw - the problem is not the rate of inflation, it's the actual level of prices itself.

What he meant was that we see this huge bounce in, say, oil, but then mostly a levelling off. The same thing occurred with those one time/very infrequent purchases during the pandemic like furniture.

Peloton is a good example of this as once you've bought yourself one of those, you have it, that's it. The same goes for a lot of other stuff (e.g a couch or fridge or the endless home gyms set up a couple of years ago).

It's the ongoing stuff/consumables (like energy) that remain pumping inflation. But furniture or whatever? A collapse in demand for that might very well produce deflation.

Take a look at peloton's stock price, sales numbers etc to get an idea of what I am talking about.

 

[Value Collector]

the problem ISN'T mortgage repayment rises , it will be all the OTHER cost rises , power , fuel , food , government fees and charges which will be running well ahead of mortgage repayment increase AND there is a fair chance property values will drop ( much like a margin call on your share portfolio )

Rate rises are meant to combat inflation, so hopefully the rises you mention will be dampened by the interest rate increases.

As for margin calls, that doesn’t really happen with your average residential mortgage, as long as you keep making the payments the bank won’t really care what the value of the property does, they know that each month the payment you make reduces the value of the loan and lowers their risk, and that over time inflation is also putting upward pressure on the house prices so that lowers their risk too.

The aren’t going to foreclose on a house just because it’s value dropped especially if you are still making payments.

 

[over9k]

Another musing:

If crypto crashes to the point of non-profitability to mine, a lot of mines will be shut off, which will drop energy demand significantly. This will then ease inflation, and thus quite possibly actually pump crypto again. Which might make mining it profitable again...

And so on and so forth.

 

[over9k]

the problem ISN'T mortgage repayment rises , it will be all the OTHER cost rises , power , fuel , food , government fees and charges which will be running well ahead of mortgage repayment increase AND there is a fair chance property values will drop ( much like a margin call on your share portfolio )

You're half correct divs - it's BOTH. If everything else rises then interest rates will rise too and thus there's both rising costs of living AND rising mortgage repayments at the same time.

Hence my constant mentioning of STAGflation, not INflation.

 

[waterbottle]

Another musing:

If crypto crashes to the point of non-profitability to mine, a lot of mines will be shut off, which will drop energy demand significantly. This will then ease inflation, and thus quite possibly actually pump crypto again. Which might make mining it profitable again...

And so on and so forth.

So this is how crypto will replace central banks - with inflation targeting

 

[over9k]

So this is how crypto will replace central banks - with inflation targeting

I was more thinking from a trading/playing the trend perspective.

It'd be well worth a tech & semiconductors buy if what I propose eventuates as we'll see a drop in inflation (so tech will run) and then we'll see a bounce in chip demand again as people are buying up mining gpu's etc (again).

 

[divs4ever]

Prices Are Going Up So Fast at This Restaurant They’re Using Stickers on the Menu

https://www.bnnbloomberg.ca/prices-...-they-re-using-stickers-on-the-menu-1.1763823

DYOR

interesting that they selected a Miami restaurant , i would have thought some other states ( like New York and California ) would face bigger problems

 

[divs4ever]

You're half correct divs - it's BOTH. If everything else rises then interest rates will rise too and thus there's both rising costs of living AND rising mortgage repayments at the same time.

Hence my constant mentioning of STAGflation, not INflation.

firstly since we are facing the potential of multiple bubbles popping , i am wondering if what we face will defy ( current ) definitions

normally business costs rise first , but the businesses TRY to reduce the price shocks ( long term unsuccessfully ) , the unknown question is will government help business in that fight or jump in grabbing a bonus tax income rise

in many governments the CPI calculation is rigged ( and has been for decades ) and CPI ( and PPI ) are lagging indicators anyway

so your 'official rates' and hindsight reactions trying to control the future ( except in very rare cases )

now governments DO have a second weapon as well as interest rates ... price controls ( and/or rationing ) this normally creates it's own issues , but it MIGHT be used

from memory living costs rise early and faster than ( existing ) mortgage costs ( the prices rise first , it registers in the CPI , rates adjust a bit later and mortgage costs increases ( EXCEPT for new mortgages , which might turn into 'cowboy city ' ) and NORMALLY wages and pensions trail behind like some abandoned kitten

so in such a cycle the worker only has one real choice .. CUT expenses ( as early as possible ) because wage rises are at least six months behind ( ditto for pensioners )

now the interesting twist to all this is how the worker ( or pensioner ) reduces expenses ( some are extremely creative and/or illegal ) share your good ideas among FRIENDS , and watch-out for informants

now what SHOULD happen ( if history is a guide THIS time ) is banks should basically yield to government pressure on mortgage rate increases ( but don't go betting any body parts on that ) so while mortgage repayments WILL rise they will not rise as much as the lenders would hope ( so watch out for bankers loading up the books with sub-prime mortgages )

but don't be complacent about that, your mortgage repayment was already a major part of your expenses , so any increase will still HURT

 

[Smurf1976]

now governments DO have a second weapon as well as interest rates ... price controls ( and/or rationing ) this normally creates it's own issues , but it MIGHT be used

Considering the overall situation I do think there's a fair chance we'll see situations where products, including direct substitutes, simply aren't available at any price before all this over.

I've only encountered it with one item thus far, which is proprietary with no alternative brand or supplier available that fits the machine, but I can foresee more of it certainly given the overall situation with supply chains and economics. And that's without government stepping in.....

 

[divs4ever]

Considering the overall situation I do think there's a fair chance we'll see situations where products, including direct substitutes, simply aren't available at any price before all this over.

I've only encountered it with one item thus far, which is proprietary with no alternative brand or supplier available that fits the machine, but I can foresee more of it certainly given the overall situation with supply chains and economics. And that's without government stepping in.....

using my family's WW2 memories , those desired products will most likely be available from 'unofficial ' ( illegal) sources , and THIS time i will have little sympathy for the government trying to regulate such activities

and very likely the issues will compound . ( because of a nail , the shoe was lost ....... etc etc )

 

[3 hound]

Dumb question but doesn't inflation make debt go away in the sense that the average income was $100 and you have a debt of $10 then due to inflation you now have an income of $1000 so the original $10 is "less" money comparative to your current income.

It's why everyone laughed in Austin Powers when the out of touch bad guy stuck in the old days threatened world leaders with a ransom of a million dollars and they all laughed in his face at the once astronomical ransom value has become an unimpressive figure - the leaders all talk in trillions now.

 

[qldfrog]

Dumb question but doesn't inflation make debt go away in the sense that the average income was $100 and you have a debt of $10 then due to inflation you now have an income of $1000 so the original $10 is "less" money comparative to your current income.

It's why everyone laughed in Austin Powers when the out of touch bad guy stuck in the old days threatened world leaders with a ransom of a million dollars and they all laughed in his face at the once astronomical ransom value has become an unimpressive figure - the leaders all talk in trillions now.

That is why the boomers had it good in the 70s to 90s in France where home loans are 25y fixed rate..inflation paid the loans .not so great for places with variable rates..aka Oz
or savers..especially now that we have heavily negative real term rates.
And while it is great for government debt being wiped by inflation, not so good on commoners as salaries pensions etc are always a step behind.
Inflation is the greatest universal tax on people.
In a flash,your parttime cafe waiter is taxed at 50%, and he will indeed be a filthy rich bastard as most will have no job at all.

 

[3 hound]

That is why the boomers had it good in the 70s to 90s in France where home loans are 25y fixed rate..inflation paid the loans .not so great for places with variable rates..aka Oz
or savers..especially now that we have heavily negative real term rates.
And while it is great for government debt being wiped by inflation, not so good on commoners as salaries pensions etc are always a step behind.
Inflation is the greatest universal tax on people.
In a flash,your parttime cafe waiter is taxed at 50%, and he will indeed be a filthy rich bastard as most will have no job at all.

Makes sense why government worldwide are so addicted to printing money and calling it MMT like it's something big brained and more than monkeys printing money.

It follows that gov has to keep growing in order to spend all the funny money into the real economy.

Their will never be accountability because the working population won't figure out the trick that's been played on them until they retire and the younger ones won't care as they are to busy being the beneficiaries of the funny money stolen from their own future.

Brilliant set up really, throw in price fixing, bank bail-in's and central bank digital programmable currency for all the fools stupid enough to work and accumulate wealth and assets and you have the perfect scam.

The bad guy in Austin Powers is an amateur compared to this level of fukery.

 

[sptrawler]

Makes sense why government worldwide are so addicted to printing money and calling it MMT like it's something big brained and more than monkeys printing money.

It follows that gov has to keep growing in order to spend all the funny money into the real economy.

Their will never be accountability because the working population won't figure out the trick that's been played on them until they retire and the younger ones won't care as they are to busy being the beneficiaries of the funny money stolen from their own future.

Brilliant set up really, throw in price fixing, bank bail-in's and central bank digital programmable currency for all the fools stupid enough to work and accumulate wealth and assets and you have the perfect scam.

The bad guy in Austin Powers is an amateur compared to this level of fukery.

With inflation the only ones who really get hurt, are those who can't carry their debt over the re adjustment and those on a fixed income. The rich love it, because bargains really present during inflationary re adjustments.
A lot of money flows out of the market into term deposits and housing tends to stagnate, well that is what I observed during my time.

 

[3 hound]

What about the people that have managed to save $x to spend in retirement, unless it has been invested successfully at a gain that $x dollars over time has lost value so it affects a lot more people than you mentioned.

Fixed income is a bit misleading because wages always increase and so does welfare. They may or may not increase as fast but no income is fixed according to history.

The winners are the rich investors picking up the carnage of those gone broke and the poor who spend every cent they get and save nothing.

The majority in the middle lose because they save instead of spend and lack the means to buy up the carnage left by defaulters.

 

[sptrawler]

What about the people that have managed to save $x to spend in retirement, unless it has been invested successfully at a gain that $x dollars over time has lost value so it affects a lot more people than you mentioned.

Those with $x in retirement usually have it in super or in term deposits, the ones who have saved a sizable sum are those workers who lean toward investment, so they usually are able to adjust. What I found that happened talking with the workmates over my career, when interest rates on savings became appreciably higher than dividends, most would rather take 10% term deposit, than risk the capital.

Fixed income is a bit misleading because wages always increase and so does welfare. They may or may not increase as fast but no income is fixed according to history.

That's true, I was using a general term to refer to those on welfare or self funding, welfare lags inflation and those whose only income is from investment have to grow their returns which isn't as easy as it sounds.
Take for example someone who is 68 and self funded, they have to meet their drawdown requirement and maintain their buying power. Sounds easy but in practice is difficult.
My father retired in the early 1990's and had $90,000 in super he thought he was rich and life would be easy.

The winners are the rich investors picking up the carnage of those gone broke and the poor who spend every cent they get and save nothing.

That's always been the case and always will be, even in China where the cultural revolution decreed everyone was equal and the wealth should be shared equally has now got the super rich and the super poor and that has happened over 20-30 years.

The majority in the middle lose because they save instead of spend and lack the means to buy up the carnage left by defaulters.

The majority in the middle lose usually because they spend everything they earn, they buy the 4X4, the trips to Bali, the eating out, unfortunate but true.
The lockdown has proven that.
Middle Australia has saved record amounts of money over the last two years, now they are blowing it bidding up houses.
They would have bought record numbers of new cars, but they couldn't get hold of them, so second hand cars sales and prices went through the roof.
It is just the way people are. As any wealth creation book will tell you, most people don't become comfortable because they spend everything they earn, I know with my own kids I shake my head at the amount of money they earn and how little they save, but it is their business and not my place to but in.

 

[3 hound]

I know with my own kids I shake my head at the amount of money they earn and how little they save

Why would you want them to save??

We have established you either gamble on investing eg the stock exchange or the horse races (at this point I can't tell the difference except the race track has a high standard of dress code and you get to catch some sunshine while the stock exchange you are locked up in your basement feverishly obsessing over some graphs you pretend you understand and can predict) or you spend every cent you earn soon as you get and buy things you need and enjoy because saving is stupid.