Is this the start of a hyperinflation period?

[BitterPill]

Apparently, it’s “healthy” to erode your money’s value by 2% every year. Healthy for whom? Certainly not for anyone trying to save money in the bank.

I posit it would be much healthier to go through a deflation of 2% a year for the foreseeable future. Then many would be encouraged to leave their money in the bank.

Problem solved.

MAGA.

 

[JohnfrmClevelan]

I posit it would be much healthier to go through a deflation of 2% a year for the foreseeable future. Then many would be encouraged to leave their money in the bank.

Problem solved.

MAGA.

Sounds great for aggregate demand.

 

[Kushinator]

Robert, Kiyosake, author of "Rich Dad, Poor Dad", suggests hyperinflation may soon be here. His argument is that during a recent treasury auction there were not enough bidders to cover the offering so the Treasury Department purchased 50B worth of it own treasury notes.

That's simply not true. I don't know why someone would suggest anything of the sort as primary dealers are required to bid. We can't technically have a bid-to-cover ratio below 1.

If this is accurate

It's not.

I'm betting it is a result of China and other nations selling of the US notes they own in retaliation to tariffs imposed by the current US admin.

Again, this is not accurate. Other nations buy U.S. Treasury securities because they run current account surpluses with the U.S., and failure to do so would cause their currencies to rise at a pace that would negate their trade balance in the future.

The market is flooded, the Treasury will have to raise the interest rate it is offering in order to secure the funds required.

Even more inaccuracy. The Treasury will change interest rates if the resulting yields begin to diverge from the issued coupon. Make no mistake about it... a very large portion of the demand for Treasuries is directly tied to the trade deficit of the United States.

 

[Kushinator]

Apparently, it’s “healthy” to erode your money’s value by 2% every year. Healthy for whom? Certainly not for anyone trying to save money in the bank.

Banks pay interest. An inflation rate in the 2%-4% range incentivizes consumers and businesses to put their money to work.

 

[Kushinator]

Hasnt the FED been buying US treasuries for years?

All you have to do is look at the data.

The Fed hasn't been a net buyer of Treasuries going back to June of 2022. Before the financial crisis, we had an archaic style of monetary policy, where the Fed would buy or sell Treasury securities to change interest rates. Not anymore.

The Fed can now buy Treasury securities while simultaneously increasing the federal funds rate.

 

[aociswundumho]

An inflation rate in the 2%-4% range incentivizes consumers and businesses to put their money to work.

1) So savers lose: a 2 - 4% annual loss in value punishes people who don’t want to speculate.

2) Forcing people to invest out of fear of their money losing value means more bad investments.

3) It's yet another hidden tax.

 

[Kushinator]

1) So savers lose: a 2 - 4% annual loss in value punishes people who don’t want to speculate.

They aren't saving. People generally keep their money in the bank, and cash doesn't lose purchasing power that fast with a reserve currency unless the rest of the world is up against similar pricing pressure.

2) Forcing people to invest out of fear of their money losing value means more bad investments.

Even if they didn't purchase assets, keeping your money in the bank earns interest. Right now, CPI and PCE are are 2.3% and 2.65% YoY respectively. You can get 4.5% to 5% parking the same money in savings as we speak.

3) It's yet another hidden tax.

For black market entities. If you are weird enough to keep vast sums of cash hidden for years upon years in the modern era... i have no sympathy.

 

[Econ4every1]

Certainly not for anyone trying to save money in the bank.

Is there anyone that saves a significant portion of their net worth in cash?

Why?

Because inflation affects the dollar value of anything priced in the dollar.

If I have $1000 to save and I spend it on something that can be considered an investment, e.g. wheat futures, if the price of wheat is only effected by inflation, then the value of your wheat futures are worth 2% more, meaning that the value of your investments scale with inflation, unless you think that the value of the dollar can drop, but the cost of investments don't change.

Further, market values for labor are also effected by inflation (as labor is a price) and tends to rise. The real problem is when labor costs fall behind inflation, which is a concern for many in the bottom 1/2 of the economy.

Any perceived problem of inflation "solved" by an attempt to manage dollar value, will have an equal or greater effect on prices and/ or supply, generally negatively.

 

[Econ4every1]

Hasnt the FED been buying US treasuries for years?

If it's not been motioned already, the Fed buys and sells Bonds from the private market, to affect reserve levels (which are not the same as dollars). Most people know this as "Open Market Operations"

In essence, by buying or selling bonds, the Fed directly manipulates the supply of reserves available to banks, which in turn influences the federal funds rate (the overnight lending rate between banks) and, ultimately, other interest rates throughout the economy, thereby affecting borrowing, lending, and attempting to exert influence over overall economic activity.

 

[Econ4every1]

1) So savers lose: a 2 - 4% annual loss in value punishes people who don’t want to speculate.

I find it interesting that you use the term "speculate" here. And for the record, I think you have hit on an important point.

So let's define terms.....

• Investment: Allocating money with the expectation of generating a return over a long-term horizon, often based on fundamental analysis of an asset's underlying value. It generally involves a more measured approach to risk.
• Speculation: Engaging in high-risk financial transactions with the aim of profiting from short-term price fluctuations, often with less emphasis on the underlying asset's fundamentals and a greater tolerance for potential significant losses.

So, your use of the term speculation seems to be more a problem of how people engage with the market, rather than a fundamental problem of the market itself. Seems the problem is there is too much money seeking short term profits rather than long term returns. This tends to favor people with connections (legitimate and illegitimate), people in places of power, who are well connected, have developed sources of information (again legit or not), basically the wealthy who have turned the markets largely in an engine of speculation (aided by ludicrous right leaning ideas of "money is speech") and in all the conversations we've had, I've seen nothing from you that would address this, if anything, your solutions boil down to throwing the baby out with the bathwater, solving one problem by creating at least 2 more.

 

[Revelation]

No. We've got a very long way to go before that becomes a possibility.

it is hard to say which way the Oligarchs are going to run the fed money presses. the Orange noise says to print more, but currently cars aint selling, even the cheap ones according to my Car guru on the front lines....




good time to buy an extra beater before whatever happens next my friends.


.

 

[Lord Tammerlain]

Hyperinflation no

High inflation and low real growth certainly

Trump is not wrong in that the world economy is imbalanced,

What he has not said is that the cure is a lower standard of living in the US ( ie 2 dolls instead of 20, or two pencils instead of 40).

Once the world economy becomes more balanced the USD will have seen its relative value drop, while currency of country's with high trade surpluses will go up. That will see the GDP of China and South Korea for example increase in USD terms, perhaps making the Chinese economy the largest in the world in USD terms (already largest in PPP terms).

So Americans be ready to buy one or two Christmas presents instead of 10, to buy subcompact cars instead of midsized SUVS. It us coming Trump knows it, he has hinted at it, but his supporters have not realized it.

The USD being the reserve currency has allowed America to live beyond its means, the tariffs will reduce the availability of USD for foreign countries. They won't have the USD to buy US government debt, so US debt will have to pay higher interest rates, more debt servicing costs, more taxes to pay debt, just as the country is starting to get older and see the effects of boomers retiring on health care and SS costs.


Combine that with the removal of cheap labor and the US will see a triple whammy

 

[JohnfrmClevelan]

Once the world economy becomes more balanced the USD will have seen its relative value drop, while currency of country's with high trade surpluses will go up. That will see the GDP of China and South Korea for example increase in USD terms, perhaps making the Chinese economy the largest in the world in USD terms (already largest in PPP terms).

I agree with much of your post, except this part. There is nothing about running trade surpluses that should affect a country's currency; a trade surplus merely allows a country to amass foreign currencies, which don't do much. China's currency should be super valuable, right? But it's still cheap to buy Chinese stuff.

It is true that trade deficits should (theoretically) lower the value of your currency on the world market, because more of your currency is out there, looking for something to buy and/or being traded for other currencies, but I don't see a lot of this effect, either. Things are pretty stable, even though most countries run their trade surpluses or deficits pretty regularly. There is only so much you can do with a pile of foreign currency, really, and if it isn't used to buy goods denominated in that currency, it is ultimately saved (in the form of bonds) by *somebody.* That's why countries own lots of U.S. debt. It would be great if they spent that on American goods, but that doesn't always align with their economic goals. China would much rather just produce stuff themselves, if they are able, and grow their own economy.

 

[Lord Tammerlain]

I agree with much of your post, except this part. There is nothing about running trade surpluses that should affect a country's currency; a trade surplus merely allows a country to amass foreign currencies, which don't do much. China's currency should be super valuable, right? But it's still cheap to buy Chinese stuff.

It is true that trade deficits should (theoretically) lower the value of your currency on the world market, because more of your currency is out there, looking for something to buy and/or being traded for other currencies, but I don't see a lot of this effect, either. Things are pretty stable, even though most countries run their trade surpluses or deficits pretty regularly. There is only so much you can do with a pile of foreign currency, really, and if it isn't used to buy goods denominated in that currency, it is ultimately saved (in the form of bonds) by *somebody.* That's why countries own lots of U.S. debt. It would be great if they spent that on American goods, but that doesn't always align with their economic goals. China would much rather just produce stuff themselves, if they are able, and grow their own economy.

China is printing a lot of Rmb to fund domestic devices, which drives its currency down and inflation up.

Up until recently China did have quite a bit of domestic inflation.

So you are correct my post was rather simplistic as to what would occur in a vacuum. Heck with the government spending in Japan inflation should have it hard years ago. But consumer spending has been deflationary


China I believe has been using USD to fund the OBOR program rather than to buy more US government debt.

As for US goods, outside of items China can't make or grow enough US made products are too expensive

 

[JohnfrmClevelan]

China is printing a lot of Rmb to fund domestic devices, which drives its currency down and inflation up.

Up until recently China did have quite a bit of domestic inflation.

So you are correct my post was rather simplistic as to what would occur in a vacuum. Heck with the government spending in Japan inflation should have it hard years ago. But consumer spending has been deflationary

I think the Japanese are just savers by nature. The BOJ has been trying to induce inflation for decades, with little luck. Just another weird example of a currency that refuses to be devalued.

There is an interesting documentary about how their government got involved with the real estate market, which is still affecting things.

China I believe has been using USD to fund the OBOR program rather than to buy more US government debt.

Spent USD, though, should eventually come back to the U.S. market. That, or end up as savings in some other country.

As for US goods, outside of items China can't make or grow enough US made products are too expensive

We still manage to export about $3 trillion, and I'm sure a significant chunk of that goes to China. That's all pre-tariff, of course. U.S. goods just got a lot more expensive with retaliatory tariffs. Ace move on trump's part.

The relative values of currencies is a tough nut to crack, for me at least.

 

[OrphanSlug]

There is zero evidence that hyperinflation is imminent or in the near term, the dollar has recently recovered slightly against the international basket of currencies and we have some shockingly decent economic news despite consumer sentiment.

We also know that as long as the Senate wrestles with the “Big Beautiful Bill” then the US Treasury does not have to immediately amplify auctions in the coming half year or so.

The Fed does not have to rush into anything either.

Outside of sudden severe supply side faults the best we’ll have is an inflation bump, maybe, but no where near hyperinflation category. No model suggests this.

 

[bythoughts]

We can't have hyperinflation until the people in charge decide who gets screwed and establish a mechanism to do it.

For example, when the ammonium nitrate explosion levelled Beirut, Lebanese banks leapt into action and limited withdrawals to a pittance per week. Depositors were forced to sit and watch their life savings dwindle to pocket change while lining up to make their rationed transactions. Of course, as you'd expect, there were some highly placed officials with offshore accounts that were unaffected.

Question: does the U.S. have the infrastructure in place to make that happen? To make it consistent and keep courts and legislatures from fouling up the royal screw? I doubt hyperinflation will be permitted until the answer is yes.