It took close to a decade ('74 - '84) last time inflation was rampant. That said, a lot of things were tried before Volcker came in under Reagan and shrank the money supply aggressively, even through a subsequent recession.

Nixon tried wage controls, price controls, changing energy policy, etc. It resulted in stagflation - poor economic growth despite high inflation.

Volcker was appointed by Carter, not Reagan.

He was first appointed to the treasury by Nixon in ‘73 and was instrumental in ending the gold standard.

Then appointed by Carter in ‘79 to the Federal Reserve.

But most of his interest rate tightening happened under Reagan with a peak tightening in ‘81 with fed funds rate at 20%.

Volcker has recounted an incident in which he more or less walked out of a White House meeting with Reagan and James Baker, after Baker tried to order him to lower the discount rate.

https://www.businessinsider.com/ronald-reagan-fed-chair-volc...

Volcker also recalled telling Carter during his interview for the job that yes, he could stop inflation -- but then Carter would not be re-elected. Carter's reply was "Do it anyway."

That was how stagflation was ended. Its probably what is needed this time around.

Reagan stacked the Fed with loyalists and forced Volcker to resign.

How does the President “force” someone to resign when they are in charge of selecting the person for that role?

The Fed Chair cannot be removed by the President once installed. He was pressured by other means.

They have to be renominated every 4 year term.

He served out his 2nd term and was not renominated.

Not arguing that it wasn’t political, it clearly is even based on the Biden nomination.

Global shipping has improved recently (from $10300 in September 2021 to $7600 in May 2022) and demand has cooled to the extent stores are starting to run clearance sales because of excess inventory. Gasoline prices will drop as suppliers ramp production to capture the revenue opportunities. Supply chain snarls will resolve with time. All of this will be deflationary.

We are recovering from a global natural disaster and things are still broken. I think it’s very difficult to apply steady state reasoning in these sorts of situations. But I don’t see any structural reason things won’t return to more or less 2019 status quo.

Concerns about inflation and deflation IMO are most important if they’re a structural feature. Periods of inflation and deflation as the system corrects itself are transitory and while impactful on our day to day lives don’t necessarily portend long term economic crisis.

They can't raise interest rates quickly because it would nuke the easy-money economy (i.e. the entire economy) that has become addicted to low rates. They have to slowly raise them to keep stuff from falling apart. The ruling party also doesn't want to get hurt worse than they already are, and a stagflation recession would clobber them. So easy money and high inflation will remain for at least another year.

> They can't raise interest rates quickly because it would nuke the easy-money economy (i.e. the entire economy) that has become addicted to low rates.

This is exactly why the easy-money economy should never have been allowed to occur and persist for so long.

The amazing thing is many were predicting this back in 2008.

If anyone wants to listen to a prescient conversation about the feds actions post-2008 and inflation today, take a listen to this podcast. It was recorded in 2009.

https://www.econtalk.org/meltzer-on-inflation/

It’s an interview with Prof Meltzer from Carnegie Mellon who has done extensive research on the federal reserve system and who wrote the de facto official history of the reserve going back to its creation.

Cliff notes (all future tense):

- As a result of the 2008 crisis the fed expanded the money supply to a degree never seen before

- Rather than drive inflation, the “new money’s” effect will be muted due to skittish banks who will decide to just take the funds and hold as cash/treasuries (maintaining strong reserves) until more positive economic indicators emerge (this process could be paused by the bank if economic sentiment turned negative); this was actually seen at least in consumer spending - it was flat for years beyond the massive expansion in money supply

- Once economic forecasts turn more optimistic, the money will be deployed (through bank lending) into investments and assets leading to inflation in those prices first

- Eventually the excess supply will spill over into consumer lending and consumer spending in the classic indicators of inflation like CPI

- However the fed will be under immense political pressure to not drive the “fragile” economy into a recession (Covid anyone?) so any tightening will be far too late and inflation will overshoot targets by a huge margin

- Similar to the 70’s, until strong monetary contraction is brought in, inflation will run very hot despite other efforts to control it

Pretty accurate so far.

Thanks for sharing. This is largely why I think we are fooling ourselves with the idea that a few rate rises will be sufficient and this will be short lived with a soft landing. I think we are going to need high single digit rates to contain inflation and it will lead to a recession (I think we are already in one). Generally higher levels of indebtedness (public and private) will lead to widespread pain. I am normally an optimistic person but don’t find any reason to be optimistic about getting out of this economic hole we’ve spent decades digging.

> we are fooling ourselves with the idea that a few rate rises will be sufficient

Oh they will be.

But not until the people in charge nut up and raise the rates to the point of them actually being effective. We're beating around the bush with these paltry rate hikes right now and inflation will not abate as long as that continues and the longer it runs the more inertia it picks up as the expectation of inflation gets baked into more and more places in the economy and the tighter we will need to make the supply of money to put the brakes on it.

"The amazing things is many were predicting this back in 2008."

Inflation was at historic lows from 2008 to 2020.

I guess an economist can be wrong for over a decade and still be "pretty accurate so far" in your mind.

Thanks for clearly ignoring 90% of my comment.

By “predicting this in 2008” they predicted a long period of low inflation before it started to accelerate quickly.

I’d say that’s pretty damn accurate.

Please show a quote where he predicts a "long period of low inflation".

The transcript feature on that site states

"Why are interest rates currently so low? Shouldn't they be higher, reflecting expected inflation? Because people all over the world are fearful. But they've moved up quite a bit in the last month"

So he's saying inflation hadn't hit yet in 2009 but when the fear goes away they would. He's also implying inflation is beginning in 2009 since they "moved up quite a bit"

That doesn't sound like a 10 year low inflation prediction. It also doesn't sound like what happened over the last decade.

Thanks for your critique without actually listening to the podcast.

It's been the entire basis for the _MASSIVE_ explosion in VC investors and tech investment though. Without it way, way fewer people would be here and we'd all be making way, way less money. So, it's kind of a double-edged sword.

The problem is that a lot of that investment has been a miss-allocation, i.e. the money should have been directed elsewhere (schools? hospitals? real businesses?). Given that much of what we do is not actually that useful in the big scheme of things, I would suspect our inflated pay is somewhat unearned (though paling in comparison to top exec pay)

Mind boggling to me that you could get a 500k mortgage at 3% interest rate in the US.

It’s also fixed rate! As inflation eats into purchasing power, your monthly bill never goes up.

it will last much longer and will get worse, because everything is dependent on energy to be created/transported. There's also the fact that many retailers admitted to eating losses to try and keep customers happy assuming that inflation would be "transitory", pretty soon many of these retailers will be forced to raise prices to reflect reality

If Energy prices are driving it we are in for a long haul. Electricity costs in California is up 50% in the last five years. Efforts to on Shore manufacturing will drive it up higher

https://www.paloaltoonline.com/blogs/p/2022/03/06/when-will-...

Our solar array is providing electricity for $0.06-$0.13 per kWh, assuming 30 year depreciation. Over half that cost was for a beefy grid tied battery. (We average over one power outage per month in my area. PG&E sucks more than usual here.). Also, because we overprovisioned for storms, we basically get two EVs worth of overproduced electricity at that price. Miles driven from that electricity is cheaper than the gasoline equivalent too.

Solar panel prices did go up a bit in the last few months, but that's because the commerce department inadvertently created a shortage while enforcing the China tarrifs.

On the other hand, I was at the car dealer yesterday, and got to compare used EV prices from January and today. Yikes!

> UC Berkeley economist Meredith Fowlie recommends that the fixed-charge be larger for higher-income households, as shown below. This idea was popular among the speakers ...

So perhaps we'll soon be sending a copy of our tax returns along with our power bill for the month of May. Such a policy might anyway help wealthier people empathize with the humiliation of the poor, who are already being coerced to explain their financial circumstances to the power company:

> lower-income households (CARE and FERA customers)

I find it hard to believe people running large retail operations believed the fed and whitehouse when they uttered the word "transitory" when everyone else pointed to the money printer still going full throttle.

It's their fault for going along with the narrative the fed/whitehouse + media were pushing.

I'm not sure that's right. Let's say energy (specifically oil and gas) is driving this. And so everything goes up, because everything depends on oil and gas. But there it stops, because the price of oil and gas isn't going to go up because of inflation in, say, wheat or Nikes. Oil and gas are going up primarily because of the loss of supply from Russia.

Depends on factors we can't predict. Increasing the cost of capital should ease the inflation. But will that happen fast enough is a decision for policymakers.

It’ll last until money supply tightens.

And more gasoline is produced.

Everyone likes to blame the Russia-Ukraine conflict but inflation was spiking prior to supply issues. That war is a convenient scapegoat for politicians and bureaucrats who don’t want to take credit for profligate spending and loose policy for decades.

Russia is a convenient excuse. It's not the reason. They cancel the XL and other pipelines but pressure KSA to produce more. The whitehouse has even admitted they are using this situation to push their stated agenda of transitioning to more renewables (noble, but not consequence free). They want to eat their cake and have it too. Reality does not work that way.

Energy prices have been going up much faster than inflation long before anything with Russia. Part is increase in cost of fossil fuels more expensive Renewables, and removing cheap coal. I'll add you to our projected savings from Renewables have not kicked in.

This isn't a good or bad judgement just the facts on the ground

Let me ask you, what was the type oil being pushed through that pipeline and where was that oil destined for and what was the max throughout of the pipeline? I suggest you look it up. If you look closely, you'll realize the XL pipeline would've actually caused an increase in crude prices in the Midwest and most of the oil was destined for export. KXL was a bad deal for Americans. It certainly wouldn't have led to an increase in energy security.

Blaming the xl pipeline cancelation is silly.

The rising gasoline prices started well before the Russian war. They started almost immediately after we inaugurated a president who said he would shut down fracking, and followed through to the best of his ability.

"for decades"

I think this is important. Dumb political finger pointing is meaningless here. This issue has nothing to do with Democrats, or Republicans, or liberals, or conservatives, or this administration, or the previous one, or the previous six.

This is a nitpick, but profligate spending cannot create inflation. If I have a million dollars, and I spend a million dollars, that doesn't create inflation. Even if I spent the million dollars on stupid NFT cat gifs. I got the money from somewhere and I spent it, and sent it back out. No net inflation.

The inflation comes from the printing and spending of new money.

No. You’ve increased demand. Inflation refers to price level, not money supply.

You can generally expect US inflation figures to track pretty closely to oil prices. Especially since most of our interstate freight is diesel trucks and nearly every market is dependent on oil in one way or another. I would expect oil to stay high for a while as the international market becomes accustomed to the loss of Russia as a producer.

OPEC is in the unique position of producing more oil at a high price. In addition, the Biden administration is not friendly to exploring new oil resources and fracking. I would expect inflation and high fuel prices to be a standard feature of life for the next 3 years unless we reduce demand drastically.

This is the new baseline, you won't see inflation lower than this long-term until the system completely collapses under its own weight. The only thing keeping things running is cheap money and there will need to be more of it. Any "solution" that looks like austerity will result in destabilizing unrest. In the USA, Republicans will campaign on inflation but make money as cheap as ever as soon as they have control, because it's the only way to keep things afloat.

I think this situation is trash, but deflation is much, much worse than inflation. We don't need to revisit 1929, upper middle class will just have to live with dilution of assets if they want a functioning society.

Deflation being much much worse is a nice joke. You telling me that if gas and food and rent lowered in price over time, I will be worse off? Stuff are supposed to become cheaper as technology advances yet we only either get high or low price increases, all to fund the rich in the government.

> Deflation being much much worse is a nice joke.

Deflation is more of a nightmare than a joke. It basically means the economy has significantly contracted and that wages are going to plummet across the board. This leads to a massive spike in debt defaults.

Yeah, but not any economy, to be a nightmare requires a nightmarish economy.

Deflation is never a problem in a fiat money economy. You can print your way out of a deflation.

In the 19th century and in 1929 currencies were pegged to gold, so you could not just print money. All periods of economic crisis were deflationary, and the central banks did not have a lot of tools to fight that. That’s the origin of the idea that deflation is worse than inflation. This is just bogus nowadays.

To what extent is the risk due to a society built on debt?

It's completely due to that, but so is the fact that we can have nice things.

>> You telling me that if gas and food and rent lowered in price over time, I will be worse off?

If you have debt, you will be worse off. Wages get lowered over time, too. Imagine your salary gets cut year after year but your mortgage, car payment, and student loan payment all stay the same. That's deflation.

In the same way that unexpected inflation is good for borrowers (since they get to pay back a loan with cheaper money) unexpected deflation is bad for borrowers (since they have to pay back a loan with more expensive money).

Yeah, but guess who encourages debt.

'Stuff' should be plural, I agree

Felt off, but went with it. Looks like I made a new friend too xD.

what if your income is also lowered over time?

Thats also fine, especially if priced drop more. But even in a sane economy I would expect most would get raises as they work faster and better, even as prices fall.

Yeah I think that’s the important part to understand, deflation is so much worse and can cause an equity trap which could send us into a severe depression.

Inflation sucks but let’s not be drastic

This is not what is going to happen.

The government is likely to be locked up pretty hard if the Republicans take either the House or the Senate in the fall, and while we might not see hard austerity, we certainly won't see any stimulus.

Meanwhile, the Fed has been talking consistently very tough on inflation and is bumping 0.50 basis points every meeting and signalling that they'll do that until inflation is contained. They're talking positively about Paul Volker and keeping rates significantly above what is considered to be neutral.

And what they're worried about is the broad wage increases that are being seen (and the whole backlash against shitty jobs and pay and unionization drives).

They absolutely will raise rates this time pretty fast -- much faster than the 0.25 basis point tightening and calming reassurances every meeting under Greenspan. They're talking tougher than I've seen them ever talk in the 21st Century.

If you believe the economy is a huge bubble, they're talking like they're going to pop it. And they always overshoot and they're talking and looking like they're going to overshoot. That means that meaningfully large areas of the economy are likely to detonate (probably CMBS). Crypto will also probably melt down.

And with a Republican congress and a Democratic President the thing to worry about is that if the system needs rescuing that a chunk of the Republicans may be happy to watch it burn and blame it on Biden. Of course that will hurt them, too, but they may realize too late that the Leopards will also eat their face as well.

They're going to proceed with waging class war and crash the economy into an iceberg to get wages back under control. And everyone who is screaming at them about inflation is going to cheer them on to do it. Then when the economy hits the wall the people who would put out the fire are going to be paralyzed into inaction.

This time it is actually different because the Boomers are retiring, COVID and long COVID has taken people out of the workforce, the pandemic itself has made people very uppity and demanding and there's a huge overhang of jobs compared to job-seekers and we're seeing wage inflation. That's novel compared to the past 30+ years. And they're pretty much freaking out over it. And there's no political pushback, they have a blank check right now politically to get inflation under control. When I try to suggest that a wage-price inflation cycle would be useful to reprice debt and assets like housing people and that "stagflation" is the less-painful path to repricing people act like I should be locked up in the loony bin. QED, the Fed currently has a single political mandate to get inflation under control. We're gonna see deflation. Yield curve is going to be pushed into inverting until something breaks.

>Anyone have opinions on how long this inflation spike will last, or what the peak will be?

Sorry, Mr. Biden. You'll have to look elsewhere for economics advice.