I could go for some deflation in the housing market right about now.

The Fed will do WHATEVER it takes to prevent house price deflation. They've already shown this during the Financial Crisis. Too much of the economy and financial system is based on house prices, there's no way that they can ever afford to see house prices decline in our lifetime.

They will do whatever it takes to prevent asset price deflation in general. The last thing politicians want is people watching their 401k values go down, and they certainly want them to go up.

As far as I’m concerned, VTI is a better inflation protected security than TIPS for any 3+ year investment horizon.

At this point I'll take stagnating housing prices.

same here. Interest rates are going up so there is some hope.

You can still buy a cheap fixer upper in Detroit.

Funny you say that, I live near Detroit. I'd argue that the cheap fixer upper is seeing price inflation as well.

"The fact that everyone keeps talking about more stimulus means that the government knows more than we do"

Like what?

The US government collects data about production capabilities of pretty much every industry in America. Major companies do talk frequently with government officials about potential problems and roadblocks the business are facing, especially internationally.

In addition, they have an enormous spy apparatus operating in probably every country on earth. Military satellites can be used to gauge production around the world. They can monitor metal mines in Australia, track the shipments of ore to refineries, and have a good idea of where the finished products are going.

Clearly, all of this information is gathered and analyzed by different departments, but analysts within the White House can obtain an absurd amount of detailed information of almost any nature.

So what would they know that we don't? Hedge fund and industry analysts also pay a lot of attention to domestic and international production. Even stuff like public company shareholders meetings have a lot of insight.

The issue I would be more concerned with is the overall structure of the economy. For example, only 15% of money lending goes to actual production use. The other 85% is just a house of cards that is lending to be lent again, or invested in nonproductive ways. Basically moneylending inception.

The most obvious example would be military-related. The government would know a lot more than the private sector about troop movement, ordinance production, deployment of assets (fighter jets, naval fleets), sabotage plans. Pretty much anything that is being intentionally hidden from public view by other parties is potentially known about by the government.

Even things like water levels of various bodies around the world are data points the military tracks (food shortages lead to strife) but aren't really easy for civilians to get.

"private sector about troop movement, ordinance production, deployment of assets (fighter jets, naval fleets), sabotage plans"

I don't see these as playing a big role in the economy unless a fight between superpowers breaks out. The contracts for the items involved in these are generally well known.

I've always wondered why the government when doing these ~10 trillion stimulus to various industries just didn't give every person ~$30,000 during the last year spread out over the year. Probably because that would drive actual inflation.

Because the government does not want to upset the social ordering of people. So much of our lifestyle derives from the fact that those at the bottom have no choice but to work for those low wages and poor quality of life at work.

Giving them an option upends all the assumptions that go into loans, and therefore having to raise wages would cause defaults for businesses, and otherwise wreak havoc for those who currently benefit from owning those assets and debt.

A slow increase in quality of life for those at the bottom is okay, but a large increase so that they jump up a few rungs on the ladder would cause pain for those above.

Inflating the money supply wouldn't do what you describe. It would just make everything more expensive.

Giving everyone $30k would. Just the extra $300 per week that people were getting is causing them to be dissuaded from subjecting themselves to the bottom tier of jobs.

I’ve spoken to a lot of hotel owners and restaurateurs lamenting their inability to hire people for low wages part time work. And there are fast food restaurants around me that are closed at many times because they have no workers, especially for late night hours that they used to. Some hotel owners I know are closing off portions of their inventory because they cannot find housekeeping staff to clean their rooms for the wages/quality of life/stability they want to provide.

That is also the reason for all the PPP nonsense. Rather than simply paying the workers for lost wages and paying the businesses for lost revenue, PPP stipulations make it so the worker stays tied to the business.

> Just the extra $300 per week that people were getting is causing them to be dissuaded from subjecting themselves to the bottom tier of jobs

Giving people money that you take away if they work dissuades them from taking jobs, especially jobs that net them the same or less than they get without working.

That doesn’t really prove anything about how giving people money that you don’t take away if they work effects their willingness to work.

It does for the low paying jobs that rely on people not having a choice.

They already live on the bare minimum, but they have to clean toilets to get it. Now the government says you can live on the bare minimum, but you do not have to clean toilets.

So now you have to raise wages to entice people to clean toilets.

You are correct that it is not the exact same situation, but I think there would be even more disruption of the same kind the more you increase the government assistance.

> So now you have to raise wages to entice people to clean toilets.

Or so now people doing even more distasteful and/or lower-paid work outside of the formal economy because it can stack with means tested benefits can afford to clean toilets for low wages in the formal economy because it stacks with the now-unconditional benefits. Conjecture as to which effect dominates based on behavior with additional means-tested benefits is on extremely shaky ground.

That's a good point, and I would like to see a universal basic income to see the actual effects.

But my conjecture would be we might see lower wages for desirable work, but higher wages for undesirable work.

If you gave every American 30k USD, most people would go out and purchase a 50k automobile.

How would that help businesses that saw demand drop to zero due to the pandemic? Such as airlines, hotels, and many others that supply them.

>What the government has done in the last year with its $10+ trillion in stimulus, is the exact definition of dropping money from helicopters and yet no one is pointing this out.

Well, kinda. It's like you're only flying the helicopters over company headquarters and LA's suburbs and nowhere else.

The stimulus checks and increased unemployment can be considered helicopter money from a practical perspective though because it reached everyone. It would be even better to spend it on infrastructure or building housing but you have to do something...

Another thing people complain about is the wealth gap.

Inflation increases the value of assets. Wealthy people own assets and poor people consume goods to survive. As a result, inflation increases the gap between the wealthy and the poor.

The only realistic way to reduce the wealth gap is to accept deflationary periods. This would also improve the savings rate and reduce debt.

I understand that modern theories believe deflation to be the end of days. I attribute that belief to the fact that a deflationary period was observed during the great depression, and has been believed to be a cause rather than an effect. I frankly disagree with that viewpoint.

I believe that the government has a vested interest in ensuring inflation because the government is a debtor. A protracted period of deflation would bankrupt the government.

People cite the post-war period as one of a smaller wealth gap, but the primary reason for that is that there had been a ten year period of deflation just proceeding it.

You must have been getting a very different information stream than me.

People have been decrying (or praising) the helicopter money of the past year+ since before it even started. Hell, there was even a moment in March/April of last year when people were speculating that Trump might even implement a form of UBI.

As a thought experiment.

In an economy where money fell in bags from helicopters from the sky, wouldn't you expect net makers and street sweeping trucks to experience drastic growth?

And clearly we're seeing this not causing massive inflation, given the inflation is <5% everywhere over the last decade.

We have seen massive inflation in asset prices. Just look at housing and the stock market, both of which took off after the Financial Crisis. This is the primary cause of the massive income inequality we see these days, because poor people can't afford houses and stocks but upper middle class and wealthy people can and do.

Housing, schooling, and healthcare are necessities that people will go deeply into debt to be able to afford. They will pull money out of their retirement to bid on houses or pay for their kids college. They will mortgage anything, and beg from friends and family, to afford healthcare.

These three items are well known to have costs that have risen above inflation for decades.

I offer an alternative explanation: these three items are so vital to people that they will sacrifice spending in other areas to support these costs. All of the unmeasured inflation of the past decades is represented solely in these items.

> Which means we must have narrowly averted a truly horrific situation as a country.

Citation needed. I don't understand the logic here.

Adding $10 Trillion should have created a great deal of inflation - much more than we see. Therefore, if it were not added, we probably would see much worse than no inflation - we would see significant deflation. That's far more ruinous than mild inflation is.

Inflation is so low right now because the Fed is artificially forcing low interest rates. Dollars in circulation has little impact on it.

> Inflation is so low right now because the Fed is artificially forcing low interest rates. Dollars in circulation has little impact on it.

Inflation in the short term has more to do with elasticity of supply than demand (unless demand spikes hugely). Low interest rates don't have much to do with it (low rates are usually a tool to stimulate demand, but they only work when you don't have a pre-existing debt bubble that must be deleveraged).

Why is deflation worse than inflation? I like it when the things that I buy get cheaper.

Deflation benefits those with savings and fixed-income and inflation benefits those with a large amount of loans - as well as making government debt easier to repay (at the expense of those with savings, treasury bonds and holders of government debt).

If you have deflation together with a large debt bubble (like we have now), many people & companies will have to default. Not saying it's good or bad, but politically that kind of pain is intolerable (the politicians who support it would get voted out)

Worse: The default process leads to people selling stuff for whatever they can get (either the debtor, trying to avoid default, or the lender, trying to recoup losses). That drives down prices, causing more deflation. This cycle destroys both people and businesses. Look at a crash in the 1800s to see how this plays out. It's horrible. It's very destructive.

But you hate it when the things you sell get cheaper. That's the problem. Even if you're an ordinary employee rather than an owner, you get squeezed when the owner makes less money. Their debts remain fixed while their income decreases.

If that leads to your income being reduced (or you're downsized), you have less to spend and your contribution to demand goes down. That starts the process all over again with whatever you consume. The worst case is a "deflationary spiral" where that keeps going round and round.

It's widely thought that a small (2%) inflation avoids that spiral by encouraging people to spend their money today rather than sit on it. It slowly eats into fixed incomes, which isn't great, but in general it keeps the economy moving for those who are employed. Ideally it pumps the GDP faster than inflation, allowing us to compensate for those on fixed incomes.

Because if you buy a $300k house and need to move 10 years later, and only sell it for $150k, you still have a big chunk of the loan to pay off.

Not OP. I think the idea is that we dumped so much money into the economy and had so little inflation now, that not dropping the money would have meant severe deflation.

The government stands more to lose by a rate hike than any other individual entity. Ten year notes are traded in an open market, and sold at auction - Treasury can't just set a price and expect people to pay. If the prevailing ten year rate reverted back to the historical average of 4.9%, 30% of the Federal budget would have to be dedicated to just servicing the interest on the debt.

For Uncle Sam, low rates are about survival. We're in deep caca.

> Treasury can't just set a price and expect people to pay

The Federal Reserve is the largest purchaser of UST, so effectively yes, they can. As long as QE is happening, and as long as the rest of the world doesn't stop calling USTs "risk-free assets", it won't ever stop. If somehow the US loses its grip on that status, though, all bets are off.

It basically happened in the 1970s: https://en.wikipedia.org/wiki/Carter_bonds

I don't get that reasoning. Obviously the Fed will prevent any such loop from happening, and it won't be the least bit controversial. They have many options to do this.

For example, the Fed can in fact print money and buy treasuries (which they already did). They can (and do) pay the "profit" on Treasury bonds to the government, which they could accelerate to immediately, then buy a boatload. Or they can change reserve requirements on banks. Or ...

Whatever you think is going to bankrupt the US government, it's not going to be treasuries. It's just not.