Is rising inflation looming?

[tikunetih]

Without following that link I'm guessing...

1. That seems a bizarre approach to me. Why guess at what something might mean as opposed to reading the source itself so as to see/understand what it means? If time's short better to ignore iIMO. But don't guess, it's too error prone.

...this is what tik is trying to tell us.

2. The linked article was by Lacy Hunt and Van Hoisington so it tells us what they think, not what I think which doesn't much matter. Their views are more interesting than mine due to their exceptional long term track record and the non consensus opinion being expressed. So, linking isn't endorsement but just a means of flagging up something that might be of interest to others. If it's not of much interest then that's fine just ignore it - it's a big internet out there after all.


This is all a bit meta discussion, so apologies.

[tikunetih]

NB X-post with GS.

[Bubblesofearth]

"Translate" it yourself by reading the article from which the quote was taken.

Well, I've had a look and am still puzzled by this particular part of the quote;

the fact that fiscal expenditures have a negative multiplier on macroeconomic conditions,

The article references other studies but doesn't itself explain what this means or why it is the case.

As you have provided the quote and commented on it is it fair to assume you do understand it? If so then I would be grateful if you could share that understanding.

BoE

[TheMotorcycleBoy]

"Translate" it yourself by reading the article from which the quote was taken.

Well, I've had a look and am still puzzled by this particular part of the quote;

the fact that fiscal expenditures have a negative multiplier on macroeconomic conditions,

The article references other studies but doesn't itself explain what this means or why it is the case.

As you have provided the quote and commented on it is it fair to assume you do understand it? If so then I would be grateful if you could share that understanding.

BoE

I did read the first 3 or so pages after a while.

I agree with BoE, i.e. I also didn't understand the fiscal expenditures having a negative multiplier effect. To a relative beginner in economics/finance that needs more elaboration, IMHO.

Matt

[TheMotorcycleBoy]

Firstly, I hope you are recovered now.

I think approximately the opposite is the case. First, money can't "pour" into equities, I doubt they would make this sort of statement. Second, their view is that low inflation means the main threat to treasuries is not there, while risk assets are exposed to credit risk and other risks which are absent from treasuries. So they are taking a bull view on treasuries, bear view on shares..

So why have risk assets (I guess that equities right?) got credit risk, but treasuries haven't?

Is it basically because the Fed cannot go bust, but private sector firms can? That's my best guess.

Matt

[tikunetih]

I also didn't understand the fiscal expenditures having a negative multiplier effect. To a relative beginner in economics/finance that needs more elaboration

They laid out their reasoning from halfway down the second column of page 2 on-wards, citing empirical research on fiscal multipliers arising from government spending programs*, and applying those findings in a summarised score-card fashion to the US economy. Their reasoning seems clear to me and largely reflects the conclusions of the paper cited.

However, being such long standing Treasury bulls and having been rewarded so well for that, there must be danger of confirmation bias in their actions, drawing them to findings such as the paper cited that happen to suit their views and their positioning. We're all human and thus susceptible to that, however much we may try guard against it.

NB BoE is just Sealioning Good luck with that.


* "How big (small?) are fiscal multipliers?"
https://www.imf.org/external/pubs/ft/wp/2011/wp1152.pdf

[Bubblesofearth]

I also didn't understand the fiscal expenditures having a negative multiplier effect. To a relative beginner in economics/finance that needs more elaboration

They laid out their reasoning from halfway down the second column of page 2 on-wards, citing empirical research on fiscal multipliers arising from government spending programs*, and applying those findings in a summarised score-card fashion to the US economy. Their reasoning seems clear to me and largely reflects the conclusions of the paper cited.

However, being such long standing Treasury bulls and having been rewarded so well for that, there must be danger of confirmation bias in their actions, drawing them to findings such as the paper cited that happen to suit their views and their positioning. We're all human and thus susceptible to that, however much we may try guard against it.

NB BoE is just Sealioning Good luck with that.


* "How big (small?) are fiscal multipliers?"
https://www.imf.org/external/pubs/ft/wp/2011/wp1152.pdf

Please don't assume you know my motives. This is not a discussion board for graduate economists.

As you are clearly not able to explain the quote yourself, but instead keep hiding behind the article, I can only assume that your own understanding is rudimentary at best.

I've looked up fiscal multiplier, a term that was new to me, and am still struggling to understand how this can be negative.

For clarity I was genuinely confused by the quote and thought you might be kind enough to explain (or translate) it in simple terms.

I thought it at least worth asking.

BoE

[dspp]

I also didn't understand the fiscal expenditures having a negative multiplier effect. To a relative beginner in economics/finance that needs more elaboration

They laid out their reasoning from halfway down the second column of page 2 on-wards, citing empirical research on fiscal multipliers arising from government spending programs*, and applying those findings in a summarised score-card fashion to the US economy. Their reasoning seems clear to me and largely reflects the conclusions of the paper cited.

However, being such long standing Treasury bulls and having been rewarded so well for that, there must be danger of confirmation bias in their actions, drawing them to findings such as the paper cited that happen to suit their views and their positioning. We're all human and thus susceptible to that, however much we may try guard against it.

NB BoE is just Sealioning Good luck with that.


* "How big (small?) are fiscal multipliers?"
https://www.imf.org/external/pubs/ft/wp/2011/wp1152.pdf

Please don't assume you know my motives. This is not a discussion board for graduate economists.

As you are clearly not able to explain the quote yourself, but instead keep hiding behind the article, I can only assume that your own understanding is rudimentary at best.

I've looked up fiscal multiplier, a term that was new to me, and am still struggling to understand how this can be negative.

For clarity I was genuinely confused by the quote and thought you might be kind enough to explain (or translate) it in simple terms.

I thought it at least worth asking.

BoE

BoE,
Be gentle with me please, as this is not my thing either, and nor have I read the article. Negative multiplier - presumably if any fiscal largesse was extracted from the economy then the multiplier effect would be less than 1. Examples might be my GF getting a Covid-19 grant and either a) putting it under a mattress, or b) sending it to China ? Would that explain that chunk of text ?
regards, dspp

[tikunetih]

Be gentle with me please, as this is not my thing either, and nor have I read the article.

dspp, read the (4 page!) article if you're interested in the subject; it's cogent and self-explanatory - hence my "Sealioning" confidence. NB now blocked...

If interested, read the cited paper (Conclusion, anyway), link above, but it shouldn't be necessary as Hoisington have just summarised that paper's empirical findings and applied them to the US today.

[Bubblesofearth]

BoE,
Be gentle with me please, as this is not my thing either, and nor have I read the article. Negative multiplier - presumably if any fiscal largesse was extracted from the economy then the multiplier effect would be less than 1. Examples might be my GF getting a Covid-19 grant and either a) putting it under a mattress, or b) sending it to China ? Would that explain that chunk of text ?
regards, dspp

Not sure. If money is hidden in the manner you suggest would that not imply a zero multiplier? I.e. it has no ongoing effect on spending? I don't see how it would cause an actual reduction in spending.

Maybe there are examples where fiscal stimulus could reduce spending but I confess I'm scratching my head a bit. My personal feeling is that when/if Covid is finally behind us then we will see an economic boom and I don't think it will take years to happen. Just talking to people generally there seems to be a huge pent up desire to not only go back to previous behaviour but to attempt to make up for lost time. Going out, travel, spending etc. If this happens then even the job market could also bounce back fairly rapidly. Hospitality and retail can hire very quickly if required.

Velocity of money should ramp up quickly and with the extra money in the system this could be inflationary. So I don't really buy into the article which seems to focus on the current state of affairs with no consideration for the possibility of an strong economic rebound.

Much of this will depend of course on the success or otherwise of the vaccination program.

BoE

[GoSeigen]

I also didn't understand the fiscal expenditures having a negative multiplier effect. To a relative beginner in economics/finance that needs more elaboration

They laid out their reasoning from halfway down the second column of page 2 on-wards, citing empirical research on fiscal multipliers arising from government spending programs*, and applying those findings in a summarised score-card fashion to the US economy. Their reasoning seems clear to me and largely reflects the conclusions of the paper cited.

However, being such long standing Treasury bulls and having been rewarded so well for that, there must be danger of confirmation bias in their actions, drawing them to findings such as the paper cited that happen to suit their views and their positioning. We're all human and thus susceptible to that, however much we may try guard against it.

Exactly the observations I made, wasn't impressed by the three-out-of-four argument, and also wonder whether they will call it wrong sometime, or whether they will manage to read the runes...

GS

[GoSeigen]

By pure coincidence, I've just come across this very good summary of the current inflation and interest rate situation. Read a bit down the page, the answer to the question "Will interest rates ever increase to 4 or 5% again, or are they going to remain at record lows for the foreseen future?"

https://www.quora.com/What-is-the-diffe ... rest-rates

GS

[NeilW]

Maybe there are examples where fiscal stimulus could reduce spending but I confess I'm scratching my head a bit.

You have to be a mainstream economist and believe in "fiscal crowding out" - which is based on the idea that there is a fixed amount of money that swaps hand at a certain price. There isn't a fixed amount of money.

In reality what you find is that the monetary and fiscal authorities, because they believe the fiction that comes out of the IMF et al, have a tendency to overreact by interpreting consumer price rises as inflation (in economics inflation is a general rise in prices *including* wages such that no more product is actually produced, just the prices change. Much as the word 'theory' in science is far more concrete a proposal than its vernacular use). So as the economy starts to recover they put the sales tax up (hi Japan), or interest rates are changed to restrict lending, and that snuffs out the pilot light.

As to "empirical evidence", you cannot explain the effect of free moving arms by citing data from a man in a straitjacket. At best they end up reporting on what is known as the "balanced budget multiplier effect", at worst they are re-affirming their religious beliefs in a way that value signals to their peers.

NeilW

[Bubblesofearth]

By pure coincidence, I've just come across this very good summary of the current inflation and interest rate situation. Read a bit down the page, the answer to the question "Will interest rates ever increase to 4 or 5% again, or are they going to remain at record lows for the foreseen future?"

https://www.quora.com/What-is-the-diffe ... rest-rates

GS

The quote you refer to states that inflation is caused by runaway wage growth. But where does the money come from to fuel this? Companies can pay higher wages and raise prices on goods to pay for them but more money surely has to enter the cycle somewhere. Is it via debt issuance or something else?

BoE

[Bubblesofearth]

Maybe there are examples where fiscal stimulus could reduce spending but I confess I'm scratching my head a bit.

You have to be a mainstream economist and believe in "fiscal crowding out" - which is based on the idea that there is a fixed amount of money that swaps hand at a certain price. There isn't a fixed amount of money.


NeilW

Let's assume I'm a typical Western consumer. If I'm given more money I will tend to spend more. More stuff, more holidays etc. That seems to be the way most people react to largesse. So why would a fiscal stimulus not give rise to increased spending generally?

Put another way, a fiscal crowding out of my Easter holiday might have me going away in the autumn as well. Next year this is exactly what I'm planning. Not from direct fiscal stimulus but from a combination of money saved last year and a desire to 'catch-up' on enjoying the rest of my life.

I get the impression a lot of people are thinking like this just now.

BoE

[GoSeigen]

By pure coincidence, I've just come across this very good summary of the current inflation and interest rate situation. Read a bit down the page, the answer to the question "Will interest rates ever increase to 4 or 5% again, or are they going to remain at record lows for the foreseen future?"

https://www.quora.com/What-is-the-diffe ... rest-rates

GS

The quote you refer to states that inflation is caused by runaway wage growth. But where does the money come from to fuel this? Companies can pay higher wages and raise prices on goods to pay for them but more money surely has to enter the cycle somewhere. Is it via debt issuance or something else?

Yes. But don't forget there doesn't have to be net money issuance. There can be an increase in velocity of money or decrease in supply of goods and services any of which will result in inflation.

GS

[NeilW]

If I'm given more money I will tend to spend more.

Now ask who has that been taken off to allow you to spend more? The experience of the individual isn't the experience of the collective.

That's the belief that arises from a fixed amount of money. The concept is that you have to rob Peter to pay Paul.

Whereas from a floating amount of money point of view, you just pay Paul, who spends the money with Peter (who then becomes Paul and spends it with a different Peter and so on) and collectively all the Peters pay via a percentage tax *from the new income they wouldn't otherwise have got*.

NeilW

[scrumpyjack]

Roger Bootle in a long article in todays paper thinks inflation is looming

https://www.telegraph.co.uk/business/20 ... y-resting/
"A huge build-up of household deposits and the overhang of pent-up demand are poised to cause an upsurge of inflation"
"You don’t have to be a raging monetarist to read the tea leaves. Even a Keynesian economist like me can recognise the inflationary dangers deriving from the huge build-up of household deposits and the overhang of pent-up demand. When monetarists and Keynesians come to the same conclusion it pays to take notice."

[dealtn]

By pure coincidence, I've just come across this very good summary of the current inflation and interest rate situation. Read a bit down the page, the answer to the question "Will interest rates ever increase to 4 or 5% again, or are they going to remain at record lows for the foreseen future?"

https://www.quora.com/What-is-the-diffe ... rest-rates

GS

Sorry, we have very different definitions of "very good" in that case.

[johnhemming]

By pure coincidence, I've just come across this very good summary of the current inflation and interest rate situation. Read a bit down the page, the answer to the question "Will interest rates ever increase to 4 or 5% again, or are they going to remain at record lows for the foreseen future?"

https://www.quora.com/What-is-the-diffe ... rest-rates

Sorry, we have very different definitions of "very good" in that case.

I cannot find it on that page now. In any event we should expect a bit of pent up demand for hospitality.

Also much that I don't like Brexit the removal of Brexit uncertainty will see some investment once Covid uncertainty is cleared.