Results 1 to 7 of 7

Thread: an interesting take on inflation and the forthcoming recession

  1. #1
    Join Date
    Oct 2003
    Location
    Valley of the Sun
    Posts
    119,413

    Default an interesting take on inflation and the forthcoming recession

    this is excerpted from the 'marketplace morning report' for today

    you can listen to the entire interview here, under the episode for june 3rd: https://www.npr.org/podcasts/3814445...morning-report

    Brancaccio: Now, where are you on if a recession is coming early next year? Or is it a fool’s errand to try to predict those things?

    Dalio: No, it’s just mechanics. I think we’re entering a period of stagflation. We can go through the reasons: The most important is: if the amount of money and credit created to give to people to spend increases by more than the amount of goods and services produced, you will have price rises. And the way that governments and central banks attempt to get rid of inflation is to take money and credit away from people. So you’ve got this inflation taking place, but now they’re going to reduce the amount of money and credit you have to deal with inflation. So I think we’ve entered an extensive period of stagflation that is not only brought about by the money and credit things that we’re talking about, but also by the inefficiencies that are being created by this different type of economic allocation. The way, in the past, that resources were allocated was primarily economics: where’s the cheapest place to produce it cost effectively? Now we’re seeing, for self-protection reasons, countries want to be self sufficient so they’ll produce it. That means that the quantity of goods and services being produced is also adversely affected, and that produces more inflation. So yeah, we’re going to be in a period where buying power will be taken away by inflation, and buying power will be taken away by raising interest rates and reducing the amount of credit because they’re trying to balance inflation with growth. And that equals stagflation.


    Brancaccio: So you think it’ll grind to a halt, growth by, I don’t know, early 2023? What’s the timing, you think?


    Dalio: Yes, the Federal Reserve is going to have to look at all the sellers; supply demand of credit. And we see that we’re going to have to sell a lot of bonds to finance the deficit. And the Federal Reserve is going to sell $1.1 trillion of bonds. And that individuals are selling a lot of bonds and foreign countries are selling bonds, because their returns are very low; the interest rates are very low in relation to the inflation rates. All of those means that there’s a contraction in credit. And so what has to happen is private credit contracts, and that means we’ll see our buying power shrink, and that’s likely to produce that contraction in economic activity.


    Brancaccio: I mean, maybe the inflation we’re seeing right now is of a different kind — that China reopens after its COVID lockdowns; that they fix the microchip shortage soon enough and we can finally buy those cars — and it eases the supply backlogs that has driving some of this.


    Dalio: Yes, there are some temporary things, but they’re really being and given exaggerated importance. We have other things that are bigger — partially this money and credit thing, and partially this geopolitical thing. Like, for example, right now you could see the effect of the war. Well, now imagine that that is carried through with secondary sanctions to China. The United States imports 22% of its manufactured goods imports from China — now imagine that there are sanctions and that there’s more of a conflict in those things. The implications of the geopolitical situation; the need for companies who worry about such possibilities having to pick alternative places to produce so that they don’t get trapped, means that it’s not the most efficient ways to produce. That lack of efficiency — together with the fact that we do have very large deficits, and we have to fund those and we have very low real returns which causes the selling of debt instruments and the buying of inflation, hedge assets — I think those are more important influences than the ones that you’re mentioning.
    Simpler is better, except when complicated looks really cool.

  2. #2
    Join Date
    Jan 2006
    Location
    Fredrikstad, Norway
    Posts
    1,084

    Default Re: an interesting take on inflation and the forthcoming recession

    Just picked up his latest book. Looks interesting
    Ragnar B.

  3. #3
    Join Date
    May 2002
    Location
    the hills
    Posts
    68,056

    Default Re: an interesting take on inflation and the forthcoming recession

    Paul, could you come back to this? I’m waking up slowly and need some guide posts for conversation topics this evening.

  4. #4
    Join Date
    Mar 2009
    Location
    Texas
    Posts
    10,752

    Default Re: an interesting take on inflation and the forthcoming recession

    No surprises here. Except that is took us so long to get here. Instead of easing into it. Reminds me of the woman on the train tracks.

    On the bright side, we can all do with less. My grandparents had the same tv for 25 years. They were fine.

  5. #5
    Join Date
    Feb 2014
    Location
    Kitty Hawk, NC
    Posts
    12,169

    Default Re: an interesting take on inflation and the forthcoming recession

    Some pundits get it completely wrong.
    The most important is: if the amount of money and credit created to give to people to spend increases by more than the amount of goods and services produced, you will have price rises.
    https://garydhalbert.com/2021/06/17/...ord-high-2021/
    From a historical perspective, household net worth has nearly doubled from its level of a decade ago when the nation was still escaping the throes of the 2008-09 financial crisis. This time around, we are rebounding from the throes of the coronavirus pandemic and recession. And the current rebound is a whopper.
    Recent history shows that net wealth (money to spend) has been increasing for a very long time without causing significant inflation.

    With that growth in wealth enough people are price insensitive that those in the bottom of the economy are left without goods and services to buy. Richer people's price insensitivity cause inflation that the poorer people suffer through.
    Life is complex.

  6. #6
    Join Date
    May 2015
    Location
    The Garden State
    Posts
    9,967

    Default Re: an interesting take on inflation and the forthcoming recession

    the biggest driver of inflation right now is housing. Not only are the prices of houses for sale going through the roof, but so are rentals. My newest co-worker just moved closer to the job from his previous 1 hour commute. He literally got into a bidding war on trying to rent an apartment of all things. With price of putting a roof over your head reaching ever more stratospheric heights, most everything else will follow. Except for salary/pay. Those have been stagnant for far too long.
    "If you think you are too small to make a difference, try sleeping with a mosquito"

    -Dalai Lama

  7. #7
    Join Date
    Dec 2003
    Location
    Portland, Oregon
    Posts
    83,439

    Default Re: an interesting take on inflation and the forthcoming recession

    I'll listen to the whole thing later. At first glance, it's perfectly plausible so far. Problem is... there are what seem to me several perfectly plausible scenarios being bruited about... and I don't know enough to guess which is more likely. Starting off, though, with "... it's just mechanics" sets all my skepticism red flags flying.

    You know the definition of Sophistry: Spin (or deliberate lies) told around a core of truth... In A Plausible Way.
    Last edited by David G; 09-24-2022 at 04:24 PM.
    David G
    Harbor Woodworks
    https://www.facebook.com/HarborWoodworks/

    "It was a Sunday morning and Goddard gave thanks that there were still places where one could worship in temples not made by human hands." -- L. F. Herreshoff (The Compleat Cruiser)

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •