US Inflation Rate

[mullokintyre]

The share market rose when this was released. Why?

It looks to me that the screws are tightening.
Interest rate cuts will have to happen, probably by June to stop a recession.

Stagflation here we come.
Mick

 

[Smurf1976]

Interest rate cuts will have to happen, probably by June to stop a recession.

It seems everyone's making an assumption the Fed is under some sort of obligation to avoid a recession.

I'm not sure about that. If push comes to shove, I'm thinking they'll chose recession rather than letting inflation go too far since eventually that becomes a threat to the currency itself.

That's not so much a response to your comment as it's an observation about overall mainstream sentiment. The idea that central banks will "have to" cut rates seems to be universally held as a given, as though it's some sort of inescapable truth. I'm not convinced.

 

[qldfrog]

It seems everyone's making an assumption the Fed is under some sort of obligation to avoid a recession.

I'm not sure about that. If push comes to shove, I'm thinking they'll chose recession rather than letting inflation go too far since eventually that becomes a threat to the currency itself.

That's not so much a response to your comment as it's an observation about overall mainstream sentiment. The idea that central banks will "have to" cut rates seems to be universally held as a given, as though it's some sort of inescapable truth. I'm not convinced.

I think the US feds will have, just under the weight of own debt interest..and because inflation is the only way out for the US.
But I believe that this is mistaken as a given for our own or other countries.
Not that I have found the Australian reserve bank being known for doing much more than cut and paste decisions to be honest

 

[mullokintyre]

I think the US feds will have, just under the weight of own debt interest..and because inflation is the only way out for the US.
But I believe that this is mistaken as a given for our own or other countries.
Not that I have found the Australian reserve bank being known for doing much more than cut and paste decisions to be honest

The one problem with this scenario of the borrowers hoping that inflation will make the repayment of those borrowings worth less real money is that the Fed and other governments then have to pay more in interest costs as well as having to repay the original loans.
Thus they have to borrow more to cover interest payments and it just becomes a giant feedback loop that is just plain unsustainable.
There has to be a circuit breaker at some time.
The circuit breaker can come in various forms, recession, currency devalue, default on loans or in an extreme case, collapse of regimes.
Mick

 

[qldfrog]

The one problem with this scenario of the borrowers hoping that inflation will make the repayment of those borrowings worth less real money is that the Fed and other governments then have to pay more in interest costs as well as having to repay the original loans.
Thus they have to borrow more to cover interest payments and it just becomes a giant feedback loop that is just plain unsustainable.
There has to be a circuit breaker at some time.
The circuit breaker can come in various forms, recession, currency devalue, default on loans or in an extreme case, collapse of regimes.
Mick

You lost me Mick: higher inflation does not mean higher interest rate, even now, with real inflation up to the 2 digit, we had rate at 5% max.
The fed will cut interest rate, and inflation will remain rampant, potentially even staggering but if we have recession, rate wil remain much lower.
So yes currency will devalue, economy will be annihilated as will individual wealth but regimes will remain and a few wars /Covid/scare will ensure population stays submissive....

 

[mullokintyre]

You lost me Mick: higher inflation does not mean higher interest rate, even now, with real inflation up to the 2 digit, we had rate at 5% max.
The fed will cut interest rate, and inflation will remain rampant, potentially even staggering but if we have recession, rate wil remain much lower.
So yes currency will devalue, economy will be annihilated as will individual wealth but regimes will remain and a few wars /Covid/scare will ensure population stays submissive....

the only tool the Feds , the RBA etc have is to manipulate interest rates.
Just about every time we have had increasing inflation, CB's will increase interest rates to curb the excess demand for "stuff" over the supply of 'stuff".

If there is persistent high inflation, but CB's start reducing interest rates due to fears of inflation, social unrest, currency upheaval etc, you then have stagflation.
It is always open to interpretation as to what phase each country's economy might be in, but any time I hear the phrase 'this time it is different", I just laugh.
Edited to add the following:
One also has to remember that the paper that has been written over the past 15 months will carry high interest rates.
As rates fall, they can be replaced by bills with lower coupon rates, but that takles time to peak.
Mick

 

[divs4ever]

the only tool the Feds , the RBA etc have is to manipulate interest rates.

what about the 'jawbone tool ' although it does risk ineffectiveness by overuse

the jawbone tool includes accessories like the dot plot , and using a variety of mouthpieces to add subtle changes to the tone

so far the 'jaw-bone tool ' seems to work very nicely with the news-feeds and automated traders , but are other human traders/investors 'losing their religion '

 

[Smurf1976]

You lost me Mick: higher inflation does not mean higher interest rate, even now, with real inflation up to the 2 digit, we had rate at 5% max.

In the short term agreed.

At some point though, rationally, if investment managers and others with money conclude that higher inflation is the actual aim of government then would a point not come where bond yields are forced higher whether the central banks like it or not?

If you're convinced that bonds are a guaranteed loss well then at some point putting your money into basically anything tangible of value becomes a better option. Someone might accept a small loss in real value for the "guarantee" of their capital being returned but there'd be a limit somewhere surely.

 

[divs4ever]

If you're convinced that bonds are a guaranteed loss well then at some point putting your money into basically anything tangible of value becomes a better option

yes that is what i suspect , and am accumulating some tangible assets when opportunities arrive

the overlooked question is will those bonds be a total loss , or just a purchasing power loss

 

[Knobby22]

I have come to the conclusion that if the Fed doesn't cut next month, it will be a very hard landing -massive unemployment and deflation in the USA.
If they start cutting in June it will be too late and quickly cutting after that won't save them.

I know my view is contrarian,
I think the failing is occurring because there is too much political influence affecting Fed decisions at present. It appears to me that they are going to stuff it up. It's a shame. Probably will be time soon to go into bonds.

Remember I said this and if I have it wrong, you have permission to lambast me repeatedly.

This argument that inflation is sticky and any cuts will help Trump is just media pundits making ill informed comment.
Look at unemployment rising, money drying up, stimulus ending and there even a possibility of a blockage again in the lower house for the money bills. The sht is going to hit the fan and its almost unavoidable.

You know me, I am usually the optimist in the room.

 

[mullokintyre]

Who

I have come to the conclusion that if the Fed doesn't cut next month, it will be a very hard landing -massive unemployment and deflation in the USA.
If they start cutting in June it will be too late and quickly cutting after that won't save them.

I know my view is contrarian,
I think the failing is occurring because there is too much political influence affecting Fed decisions at present. It appears to me that they are going to stuff it up. It's a shame. Probably will be time soon to go into bonds.

Remember I said this and if I have it wrong, you have permission to lambast me repeatedly.

This argument that inflation is sticky and any cuts will help Trump is just media pundits making ill informed comment.
Look at unemployment rising, money drying up, stimulus ending and there even a possibility of a blockage again in the lower house for the money bills. The sht is going to hit the fan and its almost unavoidable.

You know me, I am usually the optimist in the room.

Whoever wins the next POTUS prize will have big problems for all the reasons you mentioned.
Trump will probably be better if he fulfills any of his promises to cut back spending.
As reagan said, the US does not have a revenue/tax/income problem, it has a spending problem.
Mick

 

[Knobby22]

Who

Whoever wins the next POTUS prize will have big problems for all the reasons you mentioned.
Trump will probably be better if he fulfills any of his promises to cut back spending.
As reagan said, the US does not have a revenue/tax/income problem, it has a spending problem.
Mick

I respectfully disagree, the country has a revenue problem. No one pays tax except the lower middle class and in a hard landing they won't be able to pay.

Trump greatly increased the debt rapidly in order to give tax cuts to the wealthy and - "The law also dramatically weakened the AMT, which was designed to ensure that higher-income people who take large amounts of deductions and other tax breaks pay at least a minimum level of tax."

Secondly cutting more will further depress the economy. This is what Hoover did in the Depression. The result will be even higher unemployment and an even deeper recession. I am sure if Trump inherits a severe recession, his decision will not be cutting infrastructure and reduce spending even more and therefore make it worse. He will go on a spending spree like he did last time he was in power. Helicopter payments etc.

 

[qldfrog]

I respectfully disagree, the country has a revenue problem. No one pays tax except the lower middle class and in a hard landing they won't be able to pay.

Trump greatly increased the debt rapidly in order to give tax cuts to the wealthy and - "The law also dramatically weakened the AMT, which was designed to ensure that higher-income people who take large amounts of deductions and other tax breaks pay at least a minimum level of tax."

Secondly cutting more will further depress the economy. This is what Hoover did in the Depression. The result will be even higher unemployment and an even deeper recession. I am sure if Trump inherits a severe recession, his decision will not be cutting infrastructure and reduce spending even more and therefore make it worse. He will go on a spending spree like he did last time he was in power. Helicopter payments etc.

If Trump is in, he will stop paying Ukraine and bring back troops in to control and protect the bloody country, that is enough not to worsen the problem but hey...Trump is bad we have been told so and a criminal as a judge has decided a RE valuation by a bank was wrong....
I respectfully ask you @Knobby22 to take a step back, stop the ABC and start looking at facts if you are interested by the state of the US.
Sadly we have to as we are a satellite peon country.
The key to our western future is to stop the WEF.
Stop emigration and tribe wars, restore nation concepts and put economics for a country before the multi extranational global powers...good luck

 

[mullokintyre]

I respectfully disagree, the country has a revenue problem. No one pays tax except the lower middle class.

Trump greatly increased the debt rapidly in order to give tax cuts to the wealthy and - "The law also dramatically weakened the AMT, which was designed to ensure that higher-income people who take large amounts of deductions and other tax breaks pay at least a minimum level of tax."

Secondly cutting more will further depress the economy. This is what Hoover did in the Depression. the result will be even higher unemployment and an even deeper recession. I am sure if Trump inherits a severe recession, his decision will not be cutting infrastructure spending even more and therefore make it worse. He will go on a spending spree like he did last time he was in power. Helicopter payments etc.

Yes, the wealthy get too many tax cuts, and do not contribute enough to the state, but that is the same in all economies.
Increasing tax intake will not solve the problem.
There are so many unfunded liabilities, outstanding loans, economic and military intereference in damn near every other country on the earth.
Last year according to Fiscal data , the total revenue for the US govt was 4.4 trilion.
The same report showed that it spent 6.13 trillion, a deficit of 1.7 trillion dollars.
Looking at the breakdown of the income, more than half comes from personal income tax, next is the medicare and social security and medicare levies.
Corporate taxes would have to increase by factor of around 3.2 to make up that deficit.
One of the added issues is determining what is an equitable level or corporate tax is that 44 of the US states also charge corporate taxes on top of federal corporate tax, so its a bit difficult to work out the true levels of tax.
Similar to Australia, 40% of US individuals paid no income tax, so the taxation burden is already on a limited percentage of the population (source Statista )
There are also t least ten state economies that run deficits as well.
Mick




The US needs a recession, maybe even a depression.

 

[divs4ever]

If Trump is in, he will stop paying Ukraine and bring back troops in to control and protect the bloody country, that is enough not to worsen the problem but hey...Trump is bad we have been told so and a criminal as a judge has decided a RE valuation by a bank was wrong....
I respectfully ask you @Knobby22 to take a step back, stop the ABC and start looking at facts if you are interested by the state of the US.
Sadly we have to as we are a satellite peon country.
The key to our western future is to stop the WEF.
Stop emigration and tribe wars, restore nation concepts and put economics for a country before the multi extranational global powers...good luck

there is a third option that really might cause a melt-down

RFK Junior

would the Democrat voters swing behind a candidate with actual Democrat values ?

 

[Knobby22]

If Trump is in, he will stop paying Ukraine and bring back troops in to control and protect the bloody country, that is enough not to worsen the problem but hey...Trump is bad we have been told so and a criminal as a judge has decided a RE valuation by a bank was wrong....
I respectfully ask you @Knobby22 to take a step back, stop the ABC and start looking at facts if you are interested by the state of the US.
Sadly we have to as we are a satellite peon country.
The key to our western future is to stop the WEF.
Stop emigration and tribe wars, restore nation concepts and put economics for a country before the multi extranational global powers...good luck

We are talking about USA inflation and what will happen.
Again I will say that it appears the Fed is going to keep interest rates up too high too long and the USA will have a very hard landing.

Trump really has nothing to do with this. And i don't really want to talk about who the next incumbent is. It is about what we should be doing in investment terms now. I didn't bring him up.
Even if Trump is the saviour, he won't be there till the end of the year.

 

[Value Collector]

Who

Whoever wins the next POTUS prize will have big problems for all the reasons you mentioned.
Trump will probably be better if he fulfills any of his promises to cut back spending.
As reagan said, the US does not have a revenue/tax/income problem, it has a spending problem.
Mick

I actually think the opposite, who even wins the next election will inherit the benefits of the interest rate increases, and over their 4 year term will see inflation revert to mean, and the economy recover and get all the credit.

It's like Biden is getting the blame now for things that were caused by actions taken before he came to office, the next guy will get the credit for the good things that come from the hard decisions made while Biden was in office.

No one is as good or as bad as their fans or detractors think, most things are just part of economic business cycles, and politicians get pushed along with the tide and take the credit or the blame depending.

 

[Value Collector]

One of the added issues is determining what is an equitable level or corporate tax is that 44 of the US states also charge corporate taxes on top of federal corporate tax, so its a bit difficult to work out the true levels of tax.

Not just that, the investors pay 15% tax on their dividends when those profits are finally handed to them and then get no franking credits. so its 3 layers of tax

 

[divs4ever]

Not just that, the investors pay 15% tax on their dividends when those profits are finally handed to them and then get no franking credits. so its 3 layers of tax

and thus i keep my exposure to US ( and EU ) stocks to a minimum

wait until these two get really fiscally desperate

 

[Value Collector]

and thus i keep my exposure to US ( and EU ) stocks to a minimum

wait until these two get really fiscally desperate

That’s part of the reason a lot of USA companies prefer to buyback shares rather than pay dividends,

it’s also part of the reason I invest in Berkshire Hathaway for a lot of my USA exposure, because they don’t pay a dividend, my profits come as capital gains, which will be taxed with the 50% capital gains discount when I finally sell, which is probably years from now, if ever. maxing the tax rate at 23.5% (plus what ever company tax they paid)