He was probably constrained by the WSJ editors to a limited amount of space, but I would add a few notes here about inflation expectations and draw a differential between the effects of uber-accommodative monetary policy and the gigantic fiscal surges inherent in all the covid relief and stimulus spending binges, which appear to have filled the economy's estimated output gap almost three times over.
I see the former as being the primary driver of asset inflation (financial assets, real estate, etc.), and the current consumer price inflation largely if not almost almost wholly a function of the massive fiscal packages. (Note, however, that the humongous asset purchases by the Fed enable the fiscal insanity, so the two go hand-in-hand.)
The first form of inflation greatly increases wealth inequality, and the second painfully straps household budgets of the working class and lower-middle class, so both are bad news for politicians who want to be seen as "champions of the people," yet seem all too willing to shove through stuff likely to ultimately result in their being blamed for undesirable policy outcomes.
Originally Posted by CaptainMidnight
I'm just sitting back and taking this in. It's always educational when you and LL engage here. Your thoughts about the Fed causing asset price inflation and the spendthrift politicians causing consumer price inflation are interesting.
As you know, another frequently cited cause of inflation right now, especially by the Biden administration and Congressional Democrats, is a broken supply chain, low inventories, and higher demand coming out of COVID. That's the basis for their argument that inflation will be transitory, and you've mentioned it too.
I was looking for a place to park some cash, and took a quick look at inflation rates and interest rates in east and southeast Asian countries. CPI in those countries is running from 0.1% (Japan) to 2.5% (Singapore). Real interest rates in Indonesia and China are both positive. They're slightly negative in Japan and Malaysia, and around -1.5% in Singapore and Thailand. I was looking at 2 year government bond yields.
Our inflation rate right now may be the highest in the developed world. I suspect we dumped more stimulus money into our economy as a % of GDP than most.
Anyway, I guess the point is that you can't lay all the blame on the supply chain, inventories and rebounding demand. If that were the case I'd think inflation rates in these other countries would be higher. We've poured lots of money into the economy.
With additional legislation the Democrats already passed and will pass this year, we'll continue to pump in money over the next few years. And don't expect the Fed to develop some backbone. So this may last longer than Biden et al are trying to lead us to believe.
And that and $3.00 will buy you a cup of coffee at Starbucks.
