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Inflation Woes: Dark Powell Rises

And Bernake received the phony Nobel Prize (not the peace one, the other one). So is that "zero interest rates is good" message from the swedes?

It's politics, politics, politics. Political economy. Always has been, always will be.
Zero interest rates were too high, given the lack of stimulus a decade ago.
 
Learned that it works?
@Narz you know what the problem is, so many people are tricked into believing they are "the rich" when they are part of the group being sucked on.
How to fix it though? The rich took care to but the media, what passes for journalists dare not bite the owner's hand...

@Joij21 Whatever is said about Saudi Arabia running out of oil, it isn't true. Their oil production cost is much cheaper than the US producers. Their state budget breakeven point for oil price is high, but the production price is low. The producer's cost in the US is much higher. The scenario you described simply cannot happen.
That years ago there was a temporary flood of cheap oil in the US was enabled by producers eating losses during the cheap credit (zero intesrt r<te) era. That era has closed.
Americans who think they're rich but aren't is a bit complicated. I read somewhere about 20% of Americans have a year where they earn in the top 1% that year. No citation for that one but it makes sense. Sell a business, have an in-demand skill and work all the over time, etc. No one wants their one banner year taxed away, getting a single big chunk is how you escape the grind.
 
Inno, agreed Bernanke getting the prize is a scam even if I hold different opinions on what rates should be.

Speaking of rates, I believe you were the first to articulate what I'm about to say here:

Record profits during a supply shortage indicate that the firms in the game have monopolistic advantage over the remaining supply chain.

When you make things more expensive for firms while they are monopolistic, they are able to pass off much of their costs to consumers. They teach this in intro econ with pure monopolies and excise taxes, the tax is paid for by the consumer, not the firm.

Raising rates increases firm operating costs, and in these conditions, should be passed on to consumers. Which means on a level, raising rates will increase consumer prices. I don't know to what extent this plays vs other effects, but it's a clear channel of price change that isn't being talked about.

Obviously once rates are high enough to crush demand to the point that supply is no longer constrained this is no longer a factor, but it could well be that raising rates is going to raise prices until there's a breaking point, and that these partial increases will only increase inflation until we get there.
 
Zero interest rates were too high, given the lack of stimulus a decade ago.
Zero interest just makes hella wasteful rich people outcompete and shut down smaller efficiency based enterprise. It's not 1960 anymore. Efficiency would be alright. Not sure we need to innovate more IP rent lords even harder. We have more than enough of that already.

There's enough wealth at 'the top' now that taxing from the very top can be done without much real effect on the actual economy. That said, most of that wealth is spent on 'ownership' not 'consumption', so taxing it will free up less consumption than people think (though obviously will allow a reallocation of ownership). Of course, a lot of their consumption is really inefficient and the dollars don't always make sense at scale.

So, if we prevent them from being able to buy yachts, I don't know how many more chocolate bars we can make with those re-tasked resources to increase Aggregate Supply. The increased output might not be able to dent an actual supply shortage. Most of their damage is done in the form of ownership, though. Each year, they use most of their income to ensure that it takes longer for you to own your house. Taxing them so that you can own your house faster might not boost chocolate bar production either. Of course, if the working class was paid with 'faster house ownership', their productivity might increase faster too. Some people work harder to stay alive and stay 'not poor'. Some people work harder in order to be rich. That's a measurement question. Aggregate Supply needs people to be working more productively.

Consumption/production gets retasked. Ownership gets re-assigned. Ownership transfer vs. consumption allocation is kinda why the "Middle Rich" view themselves as being taxed, because it affects their actual consumption. The welfare recipient is eating the hot dog they could have eaten.

"Pays most of the tax" is a mathematical trick. If my wages get suppressed downwards, the "percentage of the tax" that my boss pays goes up (because his profits go up). But regardless, the resulting increase in tax revenue comes from my diminished capacity to consume ... not his.
Increased self ownership is a QoL that can replace certain types of consumption. When work can also double as an efficient, if not exactly professional, maintenance and entertainment? That's an actual economic win that we arsewads have managed to convince everyone would be a measurable decrease in economic activity/ prosperity.
 
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High rates relative to growth means to make a move you have to already have assets so I’m not sure how that squares with what you are saying. That’s on the borrowing side.

High savings rates means those with existing assets get more.

So you’re going to have to explain that one.
 
Why do you think those without assets, relying on their personal labor, are better positioned to take advantage of leveraging and contacting even with the differential rate of interest? That's a different skill set, it will reward financial gamesmanship as the skill and time invested. Suffocating levels of venture capital. No?

Maybe there would be a bigger wage number, but then the profit rake still compounds away from them in the relative accounting. If we're still tracking against inequality in the middle.
 
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Their oil production cost is much cheaper than the US producers.

What if the Biden administration decides to sanction them economically? Biden is already enraged at them for cutting production before the midterms so he may actually do it to get revenge and dominate. Can they really maintain a cheaper extraction rate if they are brutally sanctioned?

I will also add Biden could embargo American piping, ball bearings, steel frames, etc. to Saudi Arabia. All the things they would need for the maintenance of their current rigs. Biden could even get the EU to also stop shipping such rig maintenance parts as well, since they too are probably enraged and desire to dogpile right now. Biden could also use the world bank to make the financing of Chinese maintenance parts difficult for them to aquire.
 
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Why do you think those without assets, relying on their personal labor, are better positioned to take advantage of leveraging and contacting even with the differential rate of interest? That's a different skill set, it will reward financial gamesmanship as the skill and time invested. Suffocating levels of venture capital. No?

Maybe there would be a bigger wage number, but then the profit rake still compounds away from them in the relative accounting. If we're still tracking against inequality in the middle.
We can definitely convert back to higher wages and less debt for basically the same economy… same in a certain zoomed out sense.

But that needn’t preclude low interest rates. Imagine very progressive taxes with low rates: the rich couldn’t bid up assets so hard but mortgages could be cheap relative to now tamer prices, cheaper even more since people are more credit worthy. Plus, as you famously pointed out here, the “problem with the national debt” is that as it is issued in bonds, its interest is a giveaway. I don’t see a large decoupling of saving and borrowing rates of government money. So wouldn’t low rates and high taxes be a winning combo?
 
What if the Biden administration decides to sanction them economically? Biden is already enraged at them for cutting production before the midterms so he may actually do it to get revenge and dominate. Can they really maintain a cheaper extraction rate if they are brutally sanctioned?

I will also add Biden could embargo American piping, ball bearings, steel frames, etc. to Saudi Arabia. All the things they would need for the maintenance of their current rigs. Biden could even get the EU to also stop shipping such rig maintenance parts as well, since they too are probably enraged and desire to dogpile right now. Biden could also use the world bank to make the financing of Chinese maintenance parts difficult for them to aquire.
That’d be badass since we shouldn’t be giving oppressive societies our wealth but even I don’t think we should be shutting off oil right now.
 
I guess high taxes on what. Income, I think?

There's nothing wrong with people choosing to save. Deferring consumption, or declining ownership, or whatever that works out to be. That's not a bad thing for them to do, and inflation eats them. Income though, that's a different cookie. If relative accumulation is inequality, and too much inequality is a problem, then it's the accumulation that needs slowed as it takes of geometrically by playing the game? I'm guessing just hammering the super-rich doesn't work adequately.
 
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I guess high taxes on what. Income, I think?

There's nothing wrong with people choosing to save. Deferring consumption, or declining ownership, or whatever that works out to be. That's not a bad thing for them to do, and inflation eats them. Income though, that's a different cookie. I'm guessing just hammering the super-rich doesn't work adequately.
Someone’s savings is someone else’s debt burden, or government “debt”. And saving decisions are always realistically going to mean rates above inflation.

Edit: or someone else’s unemployment. But the aforementioned two in the event of full employment.
 
Nah, money gets created if taxing destroys it. The mechanism doesn't need to get worked that way. It can be currency created out of thin air to purchase something value-added?

Destroying more accumulation farther down the income ladder would be necessary, I think. But that could be targeted by asset or income type. Just letting things run away is a tax on the bottom. It really is all political decisions to an extent, like ya said!

Edit: bleh. I hate it when it starts getting cold. I was putting it off, but now I've made it worse. I'm having this conversation while literally inflicting mass carnage on tiny mammals for daring to share my warmth and eat my crumbs. I suppose it's making my points weird.
 
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That’d be badass since we shouldn’t be giving oppressive societies our wealth but even I don’t think we should be shutting off oil right now.

No you have it wrong. If Saudi Arabia is molested off the face of the Earth it will encourage American companies to pump more. So long as Arabia is still a contender and can threaten to pump more there is no capitalistic incentive for Exxon Mobil, Chevron, etc. to pump themselves. They need some kind of assurance that the Arabians will be handicapped so we won't have a repeat of what happened over the last ten years.

The goal is to get it cheap but not too cheap. Remember we don't need gas to get as cheap as 2015-16 levels, that's simply not sustainable. It just has to be cheap enough to give breathing space to the supply chain, that's all.
 
I will also add Biden could embargo American piping, ball bearings, steel frames, etc. to Saudi Arabia.

That would merely be shooting US industry in the foot.

China and India etc would quite happily step in and sell Saudi Arabia such components.
 
That would merely be shooting US industry in the foot.

China and India etc would quite happily step in and sell Saudi Arabia such components.

Hence why he should use the World Bank or some other form of financial/legalize voodoo in order to prevent such shipments. He's already making Russian oil uninsured, why can't he uninsure Indian and Chinese products that go to Arabia? All he needs to do is declare Saudi Arabia a terrorist state in the UN, he can use the Bin Laden connections to the Saudi family as his cassus beli to do so.
 
Hence why he should use the World Bank or some other form of financial/legalize voodoo in order to prevent such shipments. He's already making Russian oil uninsured, why can't he uninsure Indian and Chinese products that go to Arabia? All he needs to do is declare Saudi Arabia a terrorist state in the UN, he can use the Bin Laden connections to the Saudi family as his cassus beli to do so.
legal financial voodoo in this case would be two nuclear carriers
 
Nah, money gets created if taxing destroys it. The mechanism doesn't need to get worked that way. It can be currency created out of thin air to purchase something value-added?

Destroying more accumulation farther down the income ladder would be necessary, I think. But that could be targeted by asset or income type. Just letting things run away is a tax on the bottom. It really is all political decisions to an extent, like ya said!

Edit: bleh. I hate it when it starts getting cold. I was putting it off, but now I've made it worse. I'm having this conversation while literally inflicting mass carnage on tiny mammals for daring to share my warmth and eat my crumbs. I suppose it's making my points weird.
The tax on the bottom is an uneven spread, so service jobs are hitting about $20 an hour so with the inflation since the start of covid but also all the gains average losses are like 3% instead of 15%. That’s pretty reasonable given everything.

But we could definitely compress society further as you argue, I could get temporarily taxed more. I’m still at 5 figures but I could probably take about 4% higher taxes (total so I dunno 5% at the marginal rate) before taxes plus the higher food costs cause me propose to my gf so she can cook instead of me eating out 😆 I jest but I don’t.

Cut back the consumption of my bracket by 5%, a the brackets above and a bracket below a little, and you could probably reduce general inflation, well it’s worldwide but everyone follows America, a couple percent. This puts the bottom with their gains at breaking even.

But, it’s harder than that, because my inflationary spending is also the cause of these gains in nominal wages.

The market will eventual move industry to where there is the most inflation aka the bottlenecks, and people aren’t comfortable changing careers too fast ( how many Uber drivers will work in a factory? Some! ) but it still seems like a push from government is efficient.

I don’t think the inflation can really be avoided, higher taxes are appropriate, but would only wiggle a bit. Worth it, but not a solution, only a lubricant. Overall I agree. And of course much higher taxes on the upper echelons to slow down big costs like housing.

But your first point I need to address separately.
 
Nah, money gets created if taxing destroys it. The mechanism doesn't need to get worked that way. It can be currency created out of thin air to purchase something value-added?

Destroying more accumulation farther down the income ladder would be necessary, I think. But that could be targeted by asset or income type. Just letting things run away is a tax on the bottom. It really is all political decisions to an extent, like ya said!

Edit: bleh. I hate it when it starts getting cold. I was putting it off, but now I've made it worse. I'm having this conversation while literally inflicting mass carnage on tiny mammals for daring to share my warmth and eat my crumbs. I suppose it's making my points weird.
The first point is an accounting identity.

If there’s a flow of 200 and ten families earn 20 each, and that’s the whole economy, and then one family defers consumption by ten, the next cycle there’s a flow of 190. That loss could be 10, I employing one family by half, to keep it concentrated, or about -1.1 to the other families if spread. Assume each dollar is spent once per time unit. If that trend continues, as downward prices are sticky (for non volatile things like wages they are) you will have one family’s savings slowly drying up the demand for labor in the economy.

In theory (literally) the savings demand could be waiting for the other families to create a thing worth buying, but then where does the investment come from? Their savings, ideally, but now with concentrating ownership if that cycle continues.

Or instead of owning the investment they just lend to another family to own the investment, take interest. But they keep saving.

Now that 200 full employment is increasingly private loans. And how to pay the interest if the interest goes to the savers? More borrowing. The end game of this economy if it doesn’t collapse from some shock that interrupts the conversion of 200 no debt money to 200 only debt money, is that all money is the increasing obligations to the bank family.

Or they could vote more money.

But as an accounting reality, that savings has to have a corresponding entry on the system measurement. Unemployment, private debt, or fiat.

If this system had taxes and spending, and you increased taxes, the money that gets created if taxing destroys it must come from an action, because there’s no passive next step. That action is either private loans full the gap (this is the late 90s and mid late 2000s) or the legislature votes new money. Those are the primary sources in the ultimate form.

Like the federal government has to run a deficit just to meet the savings demand of the United States, adjusted for international trade, lest the ratio of private debt increases. And a government surplus plus increasing private debt just means more surplus and more private debt until something gives and pop! Unemployment.
 
I will note above that 'savings' are fiat, which is only one of a type of savings. Our economies are partially in trouble because we also don't have real savings as well as household fiat savings. As well, it's excluded bankruptcy and hair-cutting the debt-holder, which the rich truly appreciate.


If I cannot pay the $1000 that I owe a 20%, and you give me a free $100 per month to avoid my bankrupcty, then a lot of money has been handed out to help me zero except maintain my credit score to now borrow $1200.
 
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