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Rich ToscanoKeymaster[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]
Rich, can you provide some stats on that?
http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation
I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.
As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.
A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]
Go to the BLS website and chart food inflation… grocery store was the example you used.
You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.
I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).
Rich ToscanoKeymaster[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]
Rich, can you provide some stats on that?
http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation
I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.
As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.
A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]
Go to the BLS website and chart food inflation… grocery store was the example you used.
You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.
I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).
Rich ToscanoKeymaster[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]
Rich, can you provide some stats on that?
http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation
I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.
As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.
A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]
Go to the BLS website and chart food inflation… grocery store was the example you used.
You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.
I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).
Rich ToscanoKeymaster[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]
Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).
Rich ToscanoKeymaster[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]
Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).
Rich ToscanoKeymaster[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]
Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).
Rich ToscanoKeymaster[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]
Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).
Rich ToscanoKeymaster[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]
Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).
Rich ToscanoKeymasterAs to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.
I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).
The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.
Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).
Rich ToscanoKeymasterAs to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.
I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).
The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.
Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).
Rich ToscanoKeymasterAs to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.
I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).
The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.
Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).
Rich ToscanoKeymasterAs to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.
I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).
The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.
Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).
Rich ToscanoKeymasterAs to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.
I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).
The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.
Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).
Rich ToscanoKeymaster[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]
Why?
What will prompt my local Ralphs to raise prices?
Is the store manager going to read about QE2 and start remarking items on the shelves?
And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…
Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]
Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).
But to answer the question: Off the top of my head, QE can lead to somewhat higher inflation in the following ways:
1. Increasing asset prices, which is a stated goal of QE and seems to have worked for now, increases people’s propensity to spend via the wealth effect
2. To the extent that broad money supply does increase, that leads to an increase in aggregate demand in excess of what it otherwise would have been. (if times are tough, the demand will be more apparent in the “necessities” such as food, since we are using that as an example).
3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.
4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.
5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.
Notice that none of the above require either US employment or labor costs to be high or rising.
You asked how QE could cause “massive” inflation. I’m not really sure what that means. But inflation can be self-feeding in that if it gets past a certain point, inflation fears cause people to spend money faster, or to redeploy their paper cash into hard assets, which makes inflation even worse.
An abrupt rise in inflation is also possible, and could be caused for instance by a sudden drop in confidence in US debt or dollars. This would lead to all of the above list happening to a larger degree, and would also result in the supply of dollars growing as dollars come out from under mattresses throughout the world to seek safer stores of value and drive dollar-denominated prices up. We’ve seen that sudden losses of confidence in financial assets are possible, and we’ve even seen this happen with sovereign debt and currencies recently. Given the precarious debt situation faced by the US it’s entirely possible that could happen here. This is not necessarily an inflation being “caused by” QE, but it’s possible that continued debt monetization could be one of the items that causes global markets to lose confidence in US currency and bonds.
Speaking outside the QE2-as-direct-causation question, I think the premise who suspect high future inflation is that it is really the only politically expedient way to get our debt back to manageable levels. (The sub-premise being that it is only manageable now because it’s so unbelievably easy to roll over in this environment, and that ease is a result of markets mispricing the US ability/intent to pay back debt in real terms).
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