The Biggest Inflation Scare IN 40 Years?

in Threespeaklast month (edited)

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This is a headline on Marketwatch put out by an analyst. It is amazing how they all keep buying into this.

Inflation requires velocity of money, commodities increase, and wage growth.

While we might get a run up in commodities (actually likely), the other two are lagging.

In this video I discuss how this is still unlikely to happen. Even in the article the analyst figures we will not top the pre-pandemic levels by much. Thus, at most, we will see a return to normal.

Here is the article mentioned in the video.

https://www.marketwatch.com/story/the-biggest-inflation-scare-in-40-years-is-coming-what-stock-market-investors-need-to-know-11617846712?mod=home-page


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I read this on statista :

  • Inflation rate compared to previous year
    2018 3.59%
    2019 3.51%
    2020 3.18%
    2021 3.39%

Although it continues to decline, I see that on the ground it is completely different
I don't know very well about economics, but for me inflation is the decrease of money value and this is what happens

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I am not sure what you are looking at.

Here is statista and 2020 was actually negative when they projected .62%.

https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/

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Are "inflation" and "reduced value of the dollar" totally 100% interchangeable?
It seems like there's a lot more to inflation than the loss of purchasing power.
It feels like there is a disconnect here where the vast majority only care about the purchasing power.

It seems like there's a lot more to inflation than the loss of purchasing power.

There is a ton more than people make it out. There are commodities which are essential for a lot of the economy, wages, and the velocity of money.

When 2 out of the 3 are absent, in this case wages and velocity of money, things take on a completely different meaning than they are being presented.

We have been in this for 40 years.

As for purchasing power, that is something else that people like to point to yet they do not really think about what going on.

Look at all the stuff that was paid for in the past that is now free. That is just one example. Each time someone orders from Amazon, that is a less expensive process than going to the store and paying full retail on something.

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Short-term wise I do think inflation will go up because of supply side issues. Our economy has been completely disrupted by the lockdowns thus we are nowhere close to producing what we were at before the lock-down. My biggest issue is that everyone is reacting to QE as inflationary and the fed can save everything. But they can't and QE only eats up the bonds on the market so it is actually deflationary. It doesn't help the liquidity crisis we are currently in.

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Bingo. You get the gold star.

The effect of all the QE does end up as deflationary since it eats up more of the money that should go to productive purposes. Instead, it is going to servicing debt.

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I really hope that you are right. In Israel part of the mortgages are linked to the CPI.

CPI can be a flawed metric so be careful.

The biggest challenge is does not include free stuff.

There is a whole bunch we use to pay for that is now free. That is not contained in the CPI.

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Very good point

Inflation and the network effect are quickly becoming your favorite topics :P

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They keep coming up.

Network Effect is vital for crypto and inflation is being pushed in a deflationary age.

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The problem with all these analysts is that they have no clue as to what extent technology is affecting costs and will have down the road. Also, as you say, if a 30-40% increase in the money supply does not cause inflation, then it must because of the fact that that money is not circulating in the economy, chasing goods and services - as it didn't in 2020. But even if you had full employment, technological development would severely dampen inflation as well as the fact that there still are plenty of countries and regions left with low wages.

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