RE:InflationYes! Experienced, very cool story. You have written a lot of great posts! Experienced wrote: A while back I posted about how inflation was in fact a hidden a tax and it affects the poor and those on fixed income more strongly.
I also posted that over the years, Governments around the world have changed dramatically how they measure inflation moving from what was called a "basket of goods" to a new measure that somehow measures the "standard of living". The basic difference between the two measures is illustrated by the following example. In the old way, steak and chicken has a constant weight to measure the price change and thereby the inflation rate. The new way looks at the relative price of chicken and steak and if steak goes up a lot in price compared to chicken then chicken is given a higher weighting to calculate inflation and thereby reduce the calculated inflation rate.
So when the politicians and the TV pundits compare the current inflation to old measures they are comparing "apples to oranges".
The question then becomes "What would the current inflation be if we calculated it the way they used to do it?"
Well, in the US the current published inflation rate is a bit less than 7% which is high compared to the last 20 years or so. But the pundits on TV say it is not so bad. It was much worse in the early 1980s they say when interest rates were in the teens (not 1.5% like today).
To answer this question I looked for somebody who has looked at this.
The answer?
in the early 1980, inflation peaked around 13.5%. If we calculated inflation the way they did it back then the inflation rate today would be....wait for it.....about 15%!!!
What is the ramification of this?
In the early 1980s the interest rates were in the high teens but people on fixed income were getting a raise from the Government of about 13%. Today while inetrest rates are lower, but they are getting a raise of 1% even though prices they face are going up by 15%. If this continues then there is going to be two effects -
1...interest rates are going to go up and this will result in a financial crisis driven by the mortgage market a la 2008 or possibly much worse depending on the leverage numbers by the banks
2....consumer spending will go down and since it is over 60% of GDP it will result in a recession or possibly a depression which in turn will crush the stock market.
When will this happen?
Beats me. But the direction arrow is quite clear unless there is a significant change in Government policy around the world and right now there scant evidence that this is going on.
Just as it is the darkest before dawn, euphoria or irrational exhuberance as Greenspan once warned is a clear warning sign. When the markets this year are up over 20% with all this going on plus COVID, the warning signs are clearly there.
SO BE CAREFUL FOLKS!!!!