No hyperinflation pending, TIPS are retreating

[DCal430]

I see you didn't even look at the graphs or take an economics class. Come back when you do.

I agree that it is counter-intuitive. But, I prefer to dwell in the realm of reality than in the realm of intuition.

I did look at the graphs, you clearly didn't. You need to take an economics class. Please get some basic education in economics.

 

[dullard]

I did look at the graphs, you clearly didn't. You need to take an economics class. Please get some basic education in economics.

Oh you can parrot me! You must know everything then.

 

[DCal430]

Oh you can parrot me! You must know everything then.

 

[dullard]

I did look at the graphs, you clearly didn't. You need to take an economics class. Please get some basic education in economics.

Lets start with graph #1. http://scottgrannis.blogspot.com/2011/07/bond-market-on-horns-of-dilemma.html

1) What happened to interest rates (in this case measured by 10 year treasuries) in 2003 to 2004? They were relatively low (3% to 4.5%). What happened to CPI? It was relatively low (1% to 2%).

2) What happened in 2006 to 2008? Interest rates were relatively high (4.5% to 5.5%) CPI was relatively high (2% to 3%).

3) What happened in 2010 to 2011? Interest rates were relatively low(2.5% to 3.5%) CPI was relatively low (0.5% to 1.5%).

4) What happened in the periods in between on that graph? Interest rates were relatively moderate and CPI was relatively moderate.

In all time periods on that graph, they were loosely correlated (and I can show dozens of other examples in other time periods in other economies). Low interest rates went with low inflation. Higher interest rates went with higher inflation. Now please tell me your story of how I didn't look at the graph. Would you like an XY plot showing the correlation? Or would you like to retract your posts (after reading about the Fisher Effect)?

Edit: here is a nice primer for you on the Fisher Effect showing long term interest rates moving in tandem with CPI. https://www.boundless.com/economics...ionship-between-inflation-and-interest-rates/

 

[OverVolt]

Agreed with dullard. Also noteworthy is that the more Japan prints the lower the money velocity goes and we are seeing the same thing here. There is room for alot more easing and so it will probably be done. NOT easing is just too catastrophic to the economy its politically untenable. Speaking realistically anyway. Not that it is a very smart idea, but its gonna happen anyway.

 

[BlueWolf47]

While the various CPI's might be decent indicators of inflation for many, they certainly aren't for me. Healthcare costs have skyrocketed (up more than 100% over the past 3 years), gas prices are up, food prices are definitely way up for meats etc. I guess if you were in the market to buy a home, you might have seen lower prices, but the various baskets used don't reflect my spending habits, nor those of anyone I know.

The billion price project is fine for measuring inflation on the whole, but it is based on a very broad range of products/services.

I'd like to see a cpi modeled after the spending patters of various groups in the country. For example, if the average middle class family spends 10% of their income on food, then 10% of the cpi basket should reflect those food costs. That might be an interesting experiment.

Inflation on the whole right now is not high, but slowly climbing.

Healthcare has been increasing because of less competition and vertical consolidation throughout the industry. Also health services have been increasingly over consumed.

Also, a family could be spending a larger portion on food because wages have remained stagnate.

 

[DCal430]

Lets start with graph #1. http://scottgrannis.blogspot.com/2011/07/bond-market-on-horns-of-dilemma.html

1) What happened to interest rates (in this case measured by 10 year treasuries) in 2003 to 2004? They were relatively low (3% to 4.5%). What happened to CPI? It was relatively low (1% to 2%).


2) What happened in 2006 to 2008? Interest rates were relatively high (4.5% to 5.5%) CPI was relatively high (2% to 3%).

3) What happened in 2010 to 2011? Interest rates were relatively low(2.5% to 3.5%) CPI was relatively low (0.5% to 1.5%).

4) What happened in the periods in between on that graph? Interest rates were relatively moderate and CPI was relatively moderate.

In all time periods on that graph, they were loosely correlated (and I can show dozens of other examples in other time periods in other economies). Low interest rates went with low inflation. Higher interest rates went with higher inflation. Now please tell me your story of how I didn't look at the graph. Would you like an XY plot showing the correlation? Or would you like to retract your posts (after reading about the Fisher Effect)?

Edit: here is a nice primer for you on the Fisher Effect showing long term interest rates moving in tandem with CPI. https://www.boundless.com/economics...ionship-between-inflation-and-interest-rates/

1. Please look closer: Interest rates INCREASES in 2003-2004, and what happens to inflation, it is DECREASES.

2. 2006 to 2008 interest rate is DECREASING, and inflation is INCREASING.

3. They are both decreasing together because as inflation decreases, the feds lower interest rate to drive inflation back up. Due to problem with the economy inflation has been slow to respond.

You are wrong. The graph shows exactly what I am saying.

This link explains it:

http://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp

Inflation and interest rates are linked, and frequently referenced in macroeconomics. Inflation refers to the rate at which prices for goods and services rises. In the United States, interest rates – the amount of interest paid by a borrower to a lender – are set by the Federal Reserve (sometimes called "the Fed"). In general, as interest rates are lowered, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase. The opposite holds true for rising interest rates. As interest rates are increased, consumers tend to have less money to spend. With less spending, the economy slows and inflation decreases.

 

[DCal430]

This is how it works.

1. Inflation falls too much --> Feds lower interest rate in response --> In response to lower interest rate inflation rises --> Feds raise interest rates back up and inflation and interest rate stabilize.

You will often see long term treasury rise and lower before feds response, but this is because the market anticipates the feds response.

 

[OverVolt]

Healthcare has been increasing because of less competition and vertical consolidation throughout the industry. Also health services have been increasingly over consumed.

Also, a family could be spending a larger portion on food because wages have remained stagnate.

Also because its the one industry where innovation actually increases costs.

 

[OverVolt]

1. Please look closer: Interest rates INCREASES in 2003-2004, and what happens to inflation, it is DECREASES.

2. 2006 to 2008 interest rate is DECREASING, and inflation is INCREASING.

3. They are both decreasing together because as inflation decreases, the feds lower interest rate to drive inflation back up. Due to problem with the economy inflation has been slow to respond.

You are wrong. The graph shows exactly what I am saying.

This link explains it:

http://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp

Or if interest rate decreases and everyone's salary stagnates...??? :awe:

There isn't going to be inflation until people actually make more in wages because everyone is already carrying a ton of debt. Interest rates are already stupid low. Let me upgrade to a $500,000 house from my $250,000 one because the rates are now 3.75% instead of 4.25% said no person ever who didn't get a raise last year.

 

[dullard]

1. Please look closer: Interest rates INCREASES in 2003-2004, and what happens to inflation, it is DECREASES.

Lets look at your comment right there.

Start of 2003, interest rate is 4%. End of 2003, interest rate is 4%. So much for your so-called increase.

Start of 2003, CPI is 2%. End of 2004, CPI is 2%. So much for your so called decrease.

Also note that the loose relationship is long-term not short-term, so your periods are too small to apply. But I'll humor you with that small period: Early 2003 to mid 2003, interest rate decreases. Early 2003 to mid 2003, CPI decreases. Mid 2003 to mid 2004, Interwst rate increases. Mid 2003 to mid 2004, CPI increases albeit delayed slightly.

You certainly need your glasses checked. The rest of your post is similarly completely bonkers. I could post other theories and models all proving my side. You can keep posting heresay articles by journalists. No point in me arguing over the internet with someone who is denying the flat out facts.

I'll put my reputation on the line again. When the fed finally raises interest rates, CPI will go up. CPI won't go up perfectly in line with the fed rate, but it will go up within 1 year from the start of the fed interest rate hikes (likely within 6 months). Lets suppose the fed raises rates at the end of 2013, early 2014. If that happens then CPI will be higher in early to mid 2014 than it is now. If that happens, I am right. If not, you are right.

 

[dullard]

I'll make it more clear for easier verification: if on June 25 2014 US interest rates are significantly (as in say at least 1.1 times current values) higher than they are now, then I say the US CPI year over year increase will be higher on June 2014 than June 2013. I'll let you pick the interest rate measure. 10 years treasuries or something silimar?

The loser can leave Anandtech for a year.

 

[Kwatt]

Pretty damn close. With those data points in mind, would you be willing to reconsider your statement that CPI is not an accurate assessor of inflation?

After reading the FAQ and a bunch of other pages. I think I have a slightly better grasp on CPI.

It is (may) indeed be an "assessor of inflation". I still don't have enough understanding to be sure. But, I do now know I was misunderstanding the difference between the CPI and the "cost of living". The CPI does not address the "cost of living" at all. And the "cost of living" is what I was mistakingly referring to in my post.


Thank You

By the way the "cost of living" means more to me than the CPI. On a personal level.


.

 

[OverVolt]

Lets look at your comment right there.

Start of 2003, interest rate is 4%. End of 2003, interest rate is 4%. So much for your so-called increase.

Start of 2003, CPI is 2%. End of 2004, CPI is 2%. So much for your so called decrease.

Also note that the loose relationship is long-term not short-term, so your periods are too small to apply. But I'll humor you with that small period: Early 2003 to mid 2003, interest rate decreases. Early 2003 to mid 2003, CPI decreases. Mid 2003 to mid 2004, Interwst rate increases. Mid 2003 to mid 2004, CPI increases albeit delayed slightly.

You certainly need your glasses checked. The rest of your post is similarly completely bonkers. I could post other theories and models all proving my side. You can keep posting heresay articles by journalists. No point in me arguing over the internet with someone who is denying the flat out facts.

I'll put my reputation on the line again. When the fed finally raises interest rates, CPI will go up. CPI won't go up perfectly in line with the fed rate, but it will go up within 1 year from the start of the fed interest rate hikes (likely within 6 months). Lets suppose the fed raises rates at the end of 2013, early 2014. If that happens then CPI will be higher in early to mid 2014 than it is now. If that happens, I am right. If not, you are right.

If rates rise don't you have less buying power for mortgages/auto loans? $1,000 a month at 3.5% might buy a $150k house but $1,000 a month at 4.5% buys you a $130k house. Something like that.

Inflation isn't going to happen when rates rise. Buying power on credit drops like a brick and its pretty much the only buying power we've got left anyway :awe:

 

[Phantom9309]

Deflation would be nice...

 

[dullard]

If rates rise don't you have less buying power for mortgages/auto loans? $1,000 a month at 3.5% might buy a $150k house but $1,000 a month at 4.5% buys you a $130k house. Something like that.

Inflation isn't going to happen when rates rise. Buying power on credit drops like a brick and its pretty much the only buying power we've got left anyway :awe:

Assuming taxes + insurance was $326 per month, then $1000 gets you a $150k mortgage at 3.5% and a $133k mortgage at 4.5%. Close enough.

In the short run anything can happen. Interest and inflation can and do run together and they can and do run in opposite directions. So, it is possible in the short run for lower buying power on big ticket items to cause less buying and therefore lower inflation. But the opposite is also true in the short run (see how below). Houses and autos are only a part of the economy. Don't fool yourself into determining effects on the whole economy by just looking at this one part. In the long run, inflation and interest rates almost always run together, higher interest rates leads to higher inflation.

Think about times when interest rates were really high. Either it happened to you in the mid 1970s to early 1980s, or it happened to your parents. Mortgages had 10%, 12%, even 14% interest rates. Scroll down to the bottom for data: http://mortgage-x.com/trends.htm

Now think about when inflation was rampant. Gas was sky high from the oil embargo. Prices for just about everything went through the roof, including food and energy. Inflation was running in the 10%, 12%, even 14%. When was that? The mid 1970s and early 1980s.

Now look at the data for the last couple of years. Interest rates were historically quite low and CPI inflation is roughly half of the historical rate. These are not fluke examples. I could keep going with more and more examples.

High interest rates cost businesses money. Short term, businesses can absorb the cost (inflation may not be affected by CPI in that short term). Long term businesses cannot keep absorbing higher interest costs. Businesses are left with two options long term. Either raise prices, cut back on their expenses (ie cut back on production, which lowers supply and ultimately raises prices). That is it in a nutshell.

Think about it, can a business really have higher expenses (higher interest rates) and cut prices (lower CPI) over and over again for the long term? Of course not. If they are paying more for interest, they must eventually raise prices. CPI and inflation rates go hand in hand over the long term.

Ignoring the business side of the economy while focusing solely on mortgages leads many people to the wrong conclusions.

 

[dullard]

Now think about it from the investors side. Imagine there are a group of wealthy individuals.

Now imagine that interest rates were low and heading down, so that you got ~0% to ~3% returns in bonds, securities, treasuries, TIPS, money market accounts, CDs, savings accounts, etc. How many of those investors will choose one of those safe options versus how many would invest in new/expanding businesses including new product lines, better factories, etc? Probably most will choose to expand businesses since the interest rates are so low. Heck, they can even borrow money at that low rate to expand business even more. Suddenly there is a lot more production, more supply, and given the same demand, prices must fall.

Now imagine that interest rates are near 10% or higher. Bonds and all those other similar investments pay similarly high amounts. Will some of the investors take that route instead of investing in business expansion? Yes. Will investors borrow money for business expansion? Some may, but a lot fewer than in the case above. That means less expansion, less supply, and given the same demand, prices must rise.

From the investor side, prices and interest rates go hand in hand.

 

[DCal430]

Lets look at your comment right there.

Start of 2003, interest rate is 4%. End of 2003, interest rate is 4%. So much for your so-called increase.

Start of 2003, CPI is 2%. End of 2004, CPI is 2%. So much for your so called decrease.

Also note that the loose relationship is long-term not short-term, so your periods are too small to apply. But I'll humor you with that small period: Early 2003 to mid 2003, interest rate decreases. Early 2003 to mid 2003, CPI decreases. Mid 2003 to mid 2004, Interwst rate increases. Mid 2003 to mid 2004, CPI increases albeit delayed slightly.

You certainly need your glasses checked. The rest of your post is similarly completely bonkers. I could post other theories and models all proving my side. You can keep posting heresay articles by journalists. No point in me arguing over the internet with someone who is denying the flat out facts.

I'll put my reputation on the line again. When the fed finally raises interest rates, CPI will go up. CPI won't go up perfectly in line with the fed rate, but it will go up within 1 year from the start of the fed interest rate hikes (likely within 6 months). Lets suppose the fed raises rates at the end of 2013, early 2014. If that happens then CPI will be higher in early to mid 2014 than it is now. If that happens, I am right. If not, you are right.

You must be blind, look at the at the actual movement of the graph. It doesn't show at all what you are claiming. You really need to educate your self on how the feds control interest rate.

You seem to know nothing about economics.

I already posted multiple links, including links from the Feds showing they control inflation, by moving interest in the opposite direction, but you completely ignore them.

 

[dullard]

You must be blind, look at the at the actual movement of the graph. It doesn't show at all what you are claiming. You really need to educate your self on how the feds control interest rate.

You seem to know nothing about economics.

I already posted multiple links, including links from the Feds showing they control inflation, by moving interest in the opposite direction, but you completely ignore them.

I still will offer my bet. 1 year vacation from Anandtech for the loser.

And I'll add in a side bet of 1 week vacation regarding the accuracy of your last statement (in bold above). Which multiple links did you post in this thread? Or am I to scour the internet for everything else that you may have posted?

 

[DCal430]

I still will offer my bet. 1 year vacation from Anandtech for the loser.

And I'll add in a side bet of 1 week vacation regarding the accuracy of your last statement (in bold above). Which multiple links did you post in this thread? Or am I to scour the internet for everything else that you may have posted?

I posted a link to Investopedia before, I thought I also posted these links too, but guess now:


http://www.federalreserve.gov/faqs/money_12856.htm

Monetary policy also has an important influence on inflation. When the federal funds rate is reduced, the resulting stronger demand for goods and services tends to push wages and other costs higher

The Feds will raise interest rate after inflation goes above 2 or 3%, inflation isn't low because interest rate is low, the low interest rate is to STOP deflation. That was the whole point of the feds lowering interest rate to record low, to stop deflation.

 

[dullard]

I posted a link to Investopedia before, I thought I also posted these links too, but guess now:


http://www.federalreserve.gov/faqs/money_12856.htm



The Feds will raise interest rate after inflation goes above 2 or 3%, inflation isn't low because interest rate is low, the low interest rate is to STOP deflation. That was the whole point of the feds lowering interest rate to record low, to stop deflation.

So, will you take me up on the bet?

1) 1 year ban for me if inflation in June 2014 is lower than June 2013 and the fed raises rates according to the specifications above.

2) 1 year ban for you if inflation in June 2014 is higher than June 2013 and the fed raises rates according to the specifications above.

3) Nothing if the fed doesn't raise rates.

 

[DCal430]

So, will you take me up on the bet?

1) 1 year ban for me if inflation in June 2014 is lower than June 2013 and the fed raises rates according to the specifications above.

2) 1 year ban for you if inflation in June 2014 is higher than June 2013 and the fed raises rates according to the specifications above.

3) Nothing if the fed doesn't raise rates.

Inflation will rise because interest rates are very low right now, after inflation rises interest rates will be raised to stop the rising interest rates.

 

[dullard]

Inflation will rise because interest rates are very low right now, after inflation rises interest rates will be raised to stop the rising interest rates.

So, inflation and interest will both rise? I thought you said that they went in opposite directions. See your posts above that started this all:

They should not rise together.

interest rate and inflation are inversely related. As interest lowers, inflation increases

by moving interest in the opposite direction

I'm glad now that you see how you are contradicting yourself. You don't need an economics lesson as much as you need to learn to be coherent and consistent. Then maybe economics lessons will help you.

 

[DCal430]

So, inflation and interest will both rise? I thought you said that they went in opposite directions. See your posts above that started this all:



I'm glad now that you see how you are contradicting yourself. You don't need an economics lesson as much as you need to learn to be coherent and consistent. Then maybe economics lessons will help you.

I am not contradicting my self.

Please learn to read, and get an economic lesson. The feds will raise interest rates them self AFTER inflation rises, and this will cause inflation to STOP increasing.

They do move in opposite directions. The feds LOWERING interest rate causes inflation to INCREASE.

I suspect you never even been to college, and have very little education.

 

[Kwatt]

GoTo and draw graph for EXCRESNS
http://research.stlouisfed.org/fred...ch&utm_medium=website&utm_campaign=data-tools

From ~2 billion to ~1.8 trillion in 5 years.

Right now the FED is paying the banks not to lend it out.

It is OK though Uncle BS has an Exit Strategy....


.