Inflation on the Way

[usmcstinger]

The use of Keynesian Economics causes inflation. The Brits found this out and abandoned this flawed economy theory. It has never worked.

When the Fed stops putting money ( it does not have ) into the economy, inflation will start and interest rates
will rise. Looks like we are going back to the Carter years.

Who is most effected by inflation, the Middle Class and Working Poor.

 

[Pennywise]

The stats remove food and energy from the equation because (allegedly) they are too volatile as commodities to accurately gauge economic health, but anyone who shops for food knows that inflation has been a reality for years. Food costs are not fluctuating, they are going up, up, up, with no end in sight. Likewise, energy costs.

It's all a fucking scam.

 

[pinqy]

The stats remove food and energy from the equation

No, they don't. There is a special index, the so-called "core inflation" that removes food energy, but there are dozens of other special indexes as well that remove shelter, health care, just food, just energy, etc.

The headline All Items CPI-U includes food and energy. So does the All Items CPI-W which is used for Social Security COLA. And so does the All Items PCE, used in GDP calculations.

 

[SteadyMercury]

The stats remove food and energy from the equation

Probably the most common misconception related to CPI.

 

[SteadyMercury]

The use of Keynesian Economics causes inflation.

Inflation isn't by itself a bad thing for an economy, it depends on what level of inflation you're talking about.

 

[jwoodie]

So what is the best investment strategy now for a ten year outlook?

 

[pinqy]

The stats remove food and energy from the equation

Probably the most common misconception related to CPI.

That and "they substitute hamburger for steak."

 

[SteadyMercury]

So what is the best investment strategy now for a ten year outlook?

Ask me in ten years and I'll tell you.

Seriously though who knows, it all depends on what you're investing for, how much it matters if you lose money, etc.

I'm a simpleton with investing, mostly just cheapo index funds. My wife and I have reached our number so we're (in theory) financially independent, and plan on retiring at end of this year. Our investment goal is maintain our standard of living with annual inflation adjusted withdrawals, and since we're in early to mid 40s we need growth going forward since hopefully have at least a 40 year retirement to fund.

We've settled on the simple three way portfolio of 33% each in total stock market index, total intl stock market index, and total bond index. So I guess that is 67% stocks, 33% bonds. Only caveat is most of that bond mix is in a Stable Value fund that pays about 2% right now, in current interest rate environment I think the bond fund has more downside than up so I'll take the guaranteed 2% until things shake out with Yellen and company.

Good luck!

 

[william the wie]

Actually the Far East and Europe are far more worried about deflation than inflation

 

[fbj]

The use of Keynesian Economics causes inflation. The Brits found this out and abandoned this flawed economy theory. It has never worked.

When the Fed stops putting money ( it does not have ) into the economy, inflation will start and interest rates
will rise. Looks like we are going back to the Carter years.

Who is most effected by inflation, the Middle Class and Working Poor.

Well the only way I can fight inflation is to eat less and date less lol

 

[KissMy]

Bush was the most inflationary president in our lifetime. Obama killed inflation, flatlining it during his administration.

 

[Bill Angel]

How's this for a scenario?
Current lower prices for gasoline results in consumers having more money to spend on American products and services.
A greater demand for these products and services results in fuller employment and upward pressure on wages, resulting in an increase in inflation (via higher prices).
These inflationary pressures cause the Federal Reserve to start raising interest rates.
What happens when the Federal Reserve starts raising interest rates? THE STOCK MARKET SELLS OFF!
So now could be a good time to start selling off one's stock holdings, perhaps even short selling stock in some of the high flying glamour companies.

 

[SteadyMercury]

Rising interest rates have an impact on stock prices but it is one of many variables, I sure wouldn't just blindly short selling stocks right now based on speculation that interest rates alone will cause a sell off.

History has show that rising interest rates don't always equate to negative returns in the long run. Take the 1960s for example:

 

[Bill Angel]

On the subject of inflationary pressures that could induce the Federal Reserve to raise interest rates, check out the article:
http:/www.nytimes.com/2014/12/06/business/economy/after-jobs-report-obama-takes-a-little-credit.html
If job growth is robust, why would the Federal Reserve hold interest rates as low as they currently are?
To quote from the NYTimes article:

In addition to a better-than-expected growth in the number of jobs [in November], those workers’ average hourly wages rose 0.4 percent, twice what economists expected. While only a monthly number, it could suggest that wages are finally rebounding, too, which would put more cash in the pockets of working people.

 

[Treeshepherd]

If job growth is robust, why would the Federal Reserve hold interest rates as low as they currently are?
]

Because what Wall Street fears most is deflation. Fed policy is focused on stimulating inflation, and they are having a very tough time achieving that goal.

 

[Delldude]

On the subject of inflationary pressures that could induce the Federal Reserve to raise interest rates, check out the article:
http:/www.nytimes.com/2014/12/06/business/economy/after-jobs-report-obama-takes-a-little-credit.html
If job growth is robust, why would the Federal Reserve hold interest rates as low as they currently are?
To quote from the NYTimes article:

In addition to a better-than-expected growth in the number of jobs [in November], those workers’ average hourly wages rose 0.4 percent, twice what economists expected. While only a monthly number, it could suggest that wages are finally rebounding, too, which would put more cash in the pockets of working people.

Too many dollars floating out there? And when they come home what's going to happen?

 

[kiwiman127]

Well, so far this OP has been wrong.
Energy and food prices are dropping not increasing. This is good for the US's consumer driven economy.
About the only thing that is hurting some is Wall Street. But considering that when Wall Street was on a roll, that roll didn't trickle down to the working class, which just happens to make up the largest segment of the consumer class. So the deflation we are going through is helping more Americans than were being helped by the Wall Street surges.
In a sense, the working class is finally getting a raise.
Falling Food and Gas Prices Stoke Consumer Confidence
http://www.nytimes.com/2014/12/13/b...as-prices-stoke-consumer-confidence.html?_r=0

 

[Mac1958]

.

I wouldn't be freaking out about inflation just yet. The bond market doesn't believe it, and no doubt Yellen is watching that.

,

 

[Treeshepherd]

Financialization may be defined as: "the increasing dominance of the finance industry in the sum total of economic activity, of financial controllers in the management of corporations, of financial assets among total assets, of marketised securities and particularly equities among financial assets, of the stock market as a market for corporate control in determining corporate strategies, and of fluctuations in the stock market as a determinant of business cycles" (Dore 2002)

The financial sector of the US economy has become an ever-increasing slice of the pie in recent decades. Finance just doesn't create the number of jobs as the other sectors, like manufacturing or agriculture. While it remains more profitable to start a hedge fund than to start a widget factory, trickle down economics is not going to be very effective.

Also, the financial sector is fueled more than other sectors by debt and inflation, and the game of inflating our nation out of debt. If the value of the dollar plummets, it makes our $17 trillion national debt look less terrible. Of course, while these gimmicks are all well and good for Wall Street, they are less aligned with the interests of Main Street. To the average consumer, a shrinkage in GDP could merely be a reflection of lower prices for the goods and services he requires. Growth in GDP is often a simple factor of inflation.

So, Main Street is getting shafted. The Political Class protects the interests of Wall Street, but who protects the Political Class? In order to buy allegiances, we see the rise of the Praetorian Class. Steadily, the Praetorian Class overtakes the Middle Class, until such time that the entire scheme starves itself out.

"The emergence and rise of the Praetorian Class is a common observation in societies that have transitioned from market-based meritocracies to societies governed by coercive syndicates formed by the Political Class. The Praetorian Class is formed and grown to defend the Political Class and in time becomes the dragon that rules its master. It represents a highly disturbing trend because it foretells the decline, not the advance, of a society. In some instances, the decline is peaceful, clearing the path for an improved future. Unfortunately, in many instances that is not the case. The Political Class leverages the full force of the Praetorian Class representing significant loss in wealth, personal freedom and, in many cases, human life."
The Rise of the Praetorian Class Casey Research

 

[Delldude]

Well, so far this OP has been wrong.
Energy and food prices are dropping not increasing. This is good for the US's consumer driven economy.
About the only thing that is hurting some is Wall Street. But considering that when Wall Street was on a roll, that roll didn't trickle down to the working class, which just happens to make up the largest segment of the consumer class. So the deflation we are going through is helping more Americans than were being helped by the Wall Street surges.
In a sense, the working class is finally getting a raise.
Falling Food and Gas Prices Stoke Consumer Confidence
http://www.nytimes.com/2014/12/13/b...as-prices-stoke-consumer-confidence.html?_r=0

Energy prices aren't dropping due to any type welfare program for the working class. OPEC's time to go away as a major player in the futures markets killing global economies along the way. Overdue. Of course with energy prices dropping, food delivery costs are coming down.

However, similar events happened this way in 2007.....look at Ivan, China. Global meltdown on the way ?