> 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.