Inflation is at a 40 year high. What can history teach us?

The only thing we learnt from history was that *we learn nothing from the history*.<p>For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking &quot;why there were no inflation&quot;. Of course, there was no inflation as the design of CPI, the indicator of indicator, was flawed. CPI does not consider price of assets, otherwise sky would be the limit. There were crisis simply because the money went to the people who didn&#x27;t it that much. Printing much made things worse as most of the printed money went to those didn&#x27;t need it much, but nonetheless had postponed them a lot.<p>Such pretending to be dumb game could have being played a lot longer if not the pandemic which made them had no choice but printing money and sending them to those in need. And all of a sudden, those who needed the money most had so much cash they had never imaged before? What were they going to do? For sure spending them all.<p>Now here is the long *expected* inflation, what are central banks planning to deal with it? Increasing interest rate to where it should be? Seems too hard, let&#x27;s print more money!

It may also help to see the cumulative inflation picture: <a href="https:&#x2F;&#x2F;totalrealreturns.com&#x2F;s&#x2F;USDOLLAR?normalize=end" rel="nofollow">https:&#x2F;&#x2F;totalrealreturns.com&#x2F;s&#x2F;USDOLLAR?normalize=end</a> (disclosure: my side project)<p>The 1974 and 1980 peaks from the article correspond to the steeper slope regions in those same years on my graph. (I&#x27;m plotting 1&#x2F;[CPI-U price level], while the article is plotting d&#x2F;dt [CPI-U price level])<p>On my y-axis is the purchasing power of a US dollar, relative to current level. So when the y-axis shows 9.813 on 1962-10-04, this means that sixty years ago, a one-dollar bill would buy a basket of goods that today would cost $9.813.<p>It certainly &quot;feels scary&quot; when the purchasing power is eroding quickly (i.e. a fast-declining slope on my purchasing power graph, or a peak on the article&#x27;s year-over-year derivative graph).<p>All data from BLS: <a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;cpi.nr0.htm" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;cpi.nr0.htm</a>

The most dangerous thing that can happen to an advanced economy is credit markets grinding to a halt. It was the panic of 1907 that created the federal reserve in the first place.<p>Over the ensuing decades there was a very awkward path to eventually figuring out that at the moments where a complete halt to credit markets looks imminent, the fed should step in and release the jam. What we’ve learned is that just the knowledge of the fed being able to just print and buy any debt and that they would do so caused major crises to be avoided (2008 and 2020).<p>The problem recently has been that this fed is simply incompetent. They do not form their own opinions and simply follow what the prevailing narrative dictates. If it’s consensus that rates should not be lifted, they just coast through those meetings towing the same line and continuing to buy bonds.<p>Then one day the narrative shifts and concern starts to grow over fed policy. So the fed suddenly reverses course and announces sudden rate hikes. When it turns out that cpi moves slower than the fed hoped, the pressure to intervene grows.<p>Now the consensus is that the fed should be making multiple 75-100 bps hikes so that’s what they do.<p>The question now is will the narrative shift fast enough for them to not end up going too far the other way.<p>I sincerely hope the next fed chair is someone who understands the relationship between credit markets and the economy and the need at times for the fed to be the lender of last resort, but also understands that the fed should be an independent entity capable of forming its own policy and having the courage to ignore what market pundits say should be done. The Fed’s mandate is not to make Wall Street happy.

In California, people fitting certain economic criteria are now being issued $1000 checks for inflation relief. This is beyond ludicrous.<p>We have printed so much money, the only solution is to... print more?<p>It&#x27;s almost like it is all a sneaky backdoor to letting the government redistribute wealth without real oversight...

&gt; <i>But if the main driver of inflation is the demand side, or inflation expectations, history indicates that a painful recession could be the only way to curb inflation.</i><p>That&#x27;s certainly the expected path forward, at least in the circles I associate with.<p>&quot;When the tide goes out, you find out who&#x27;s swimming naked&quot; seems a reasonable guess as to what&#x27;s going to happen. Both at larger bank&#x2F;investment firm scale and at the individual level.<p>At an individual level, just how much slack and flexibility do you have in your spending, your finances, your general way of living? If you&#x27;re a high earner (there are certainly plenty here that would qualify), are you spending that on lots of monthly payments of assorted luxury and stretch items (house, cars, all the other crap you can get loans for)? You&#x27;re probably going to be in a world of hurt - there&#x27;s no income so high you can&#x27;t outspend it, and it&#x27;s really hard to adjust those payments when the value of money goes down and you need more for the living expenses. Also, those payments don&#x27;t go away if your job is eliminated.<p>If you&#x27;re comfortably pulled back, with either a high savings rate or a high &quot;optional spending&quot; rate, then you should be in far better shape to adapt - and I&#x27;ll suggest that using some of those resources to help others around you would be useful. Even just coordinating bulk buys of food and other resources is helpful. But the key here is that this allows for flexibility. It&#x27;s good to be rich, and all that - so don&#x27;t be stupid about it.<p>I think, collectively, we&#x27;re in for a world of hurt. Inflation is high, and energy costs seem to be staggering back up. Europe is going to be a frozen wasteland this winter if it&#x27;s anything but a warm winter, and the energy costs are <i>already</i> eating businesses alive out there. That&#x27;s before you get to a possibility this winter, in which money doesn&#x27;t help, because there&#x27;s simply no energy to deliver. If the natural gas pipeline to your place are empty, welp. Doesn&#x27;t help to be able to afford the energy when there&#x27;s none to buy.<p>That does imply that you might consider some backup energy solutions for the winter. I&#x27;m a fan of kerosene lately. Less annoying to use than propane, and stores almost as well.<p>The last couple years have broken a <i>lot</i> of things. And we&#x27;re only just beginning to learn how much is broken, how badly.

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing.<p>For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location.<p>Confederate inflation paused during the move.<p>The reason is pretty simple - the Law of Supply &amp; Demand. The more currency there is flooding the economy, the less value that currency has.

A good working definition of inflation is a general increase in prices and a fall in the purchasing value of money. There will generally be inflation when there are fewer goods to purchase or when the money supply increases.<p>History teaches us that the government, often through good intentions, decreases the supply of available goods. There are many reasons this happens. Recently, people were told to stay at home, and many businesses closed. At the very least, the supply of many goods dropped, and people were at home all shopping online for the same goods - causing prices to rise - inflation.<p>History also teaches us that the government increases the money supply by printing more money.<p>It&#x27;s not an accident that both of those are caused by the government. These are the masses&#x27; reasons to have lower regulation, not to give handouts to some but to stop government interference. Not to favor winners and losers but to have just enough regulation - without printing stupid amounts of money to save the economy in the short-term.<p>Unfortunately, history also shows us that government interference, though possibly well-intended, results in price controls that also cause the same problem - inflation.

As a brazilian, history teaches that inflation is a pain in the ass.<p>I lived in hyperinflation when I was a kid. I rememore that my parents would receive and run to the market in the same day, and buy everything in bulk, because next day, their money would be worth half.<p>Markets would tag products once or twice a day.<p>I remember buying an X-men comic that was worth something like 1000 BRC.<p>Monthly inflation would be beetween 50% - 80%.<p>Also a lot of the commerce was informal and using barter.

Unfortunately I leaned on history to make investment decisions during this period of rising inflation. Gold, stocks, and real estate were historically good hedges against inflation and cash holdings should be minimized. But that conventional wisdom has been a bad strategy this time.<p>As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs to be locked up for 1 year. Too bad there&#x27;s a $10k annual deposit limit.

Is there a historic precedent for Quantitive Easing?<p>Is there a historic precedent for Quantitive Tightening?<p>We have been at it since 2008 that means there is little historic data to draw any preemption from, we are on unchartered waters at this point.

What I’m seeing here is three spikes caused or exacerbated by fossil fuels. I wish we would get past the “burning stuff” era.

1. we should gently force a recession. 2. reduction in money supply. 3. this can be achieved through higher interest rates. 4. there will be higher unemployment rates. 5. home prices will fall down and speculation will cool. 6. inflation should be capped as soon as possible.<p>I am sure America is on the job. For all it&#x27;s shortcomings, noone had to starve due to bad economic policy in this country and not for decades. Having to file for bankruptcy and living less grand is not the same as starvation death level poverty. And this, btw..still exists in many countries around the world. In America(not speaking about other economies), we&#x27;ll be fine. It will be weird ride for the next decade, but this isn&#x27;t bad for America. If we were a corporation, we have sufficient moat.

There&#x27;s two causes for inflation I think everybody agrees, too little supply and too much demand.<p>The demand-caused inflation would seem to be self-correcting problem: When things cost more, people buy less of them. Then suppliers will have to lower their prices or at least stop increasing them, if nobody buys their product because of too high prices.<p>In other words if people having too much money causes inflation, people will soon NOT have too much money, because it is used up by the higher prices.<p>So the real problem to focus on would seem to be supply-side inflation. How can we produce more cheaper and distribute the products to people cheaper? Isn&#x27;t that the problem governments should be trying to solve, to get rid of inflation?

Most people talk about the printing money aspect, and while that&#x27;s definitely true, it needs to be bought into the context of the covid19 policies that exacerbated the downfall of the economy. Printing money is one thing, but doing that to &quot;cover costs&quot; while also de facto slowing down to the point of stopping the economy is on another level. Add to this the fact that the white collar jobs that &quot;seamlessly&quot; moved to remote positions for people to work from home were kind of a bubble that kept of inflating with no corrections (especially crypto pyramids with no added value in the economy), you end up with this. From there to this day it was basically a matter of inflation spiraling out of control, because the reality is that a lot of green policies, monetary decisions, &gt;new&lt; regulations in the west make it really hard to do anything that&#x27;s not part of the mentioned bubble.(Which hasn&#x27;t fully bursted in my opinion, hoping i&#x27;m wrong)<p>And yes, let&#x27;s also mention the stimulus checks that had more of a bad psychological impact on the working middle class. The total number wasn&#x27;t that big though, compared to other gov. expenses. Let&#x27;s not forget, US &amp; Western european countries still have the &quot;luxury&quot; that their economies is more largely composed of industries that functioned during the lockdowns(IT, Entertainment,etc). With the exception of eastern asia, the rest of the world [where most of manufacturing &amp; shipment takes place] did not.

Nothing. The people that understand history aren&#x27;t in a position of power, and the people in a position in power--most of them, anyway--don&#x27;t need to remember, it works against them.

It&#x27;s very much a tale of two dollars, however. The dollar price index plummeted after abolishing the gold standard. Now it has risen substantially, as it did in 2008, to become the safe haven currency that all other countries are hoarding, due to inflation in their own countries. At some point this house of cards will collapse, specifically if the Fed capitulates in its fight against inflation and stops raising interest rates.

Print lotsa money, get lotsa inflation.

Mark Twain once said that “History never repeats itself, but it does often rhyme. We should use the bottom up approach for investing stocks. I don&#x27;t believe that macro prediction is useful. Nonetheless, we should prepare for the worst because the recession is looming.

History teaches us, don&#x27;t let interest rates go below 2.5%.

One thing I would like to understand is how much is this related&#x2F;cause by the 2008 financial crisis and the quantitative easing policies.

i&#x27;m pretty tired of living in a world where the cost of everything is constantly going up, and everything is going further and further out of reach<p>this has been the norm pretty much 20 years, i hope we will get some kind of reset to level the playing field

Corporate profite is at a 50 year high. What does that teach us?

I&#x27;m no crypto fanboy by any means, but it&#x27;s hard to not think that, if crypto doesn&#x27;t completely die out this bear market, it&#x27;s likely to be at least a somewhat significant factor in all of this.<p>Not saying it will save us all, but it seems like alternate stores-of-value are likely to be, well, valuable.

That previous inflation highs were also created intentionally?

I&#x27;m disabled and in California. I don&#x27;t exactly have the physical means to manual labor.<p>Am I just screwed in coming years?

&gt; Print trillions and trillions of dollars.<p>I wonder whatever could have caused this unprecedented inflation?

do not mess with the russians?

war is probably coming.

Weren&#x27;t the high inflation years also some of the most progressive, with some of the lowest inequality in recent decades?

Inflation is high &#x27;cause China. We are more interconnected and globalized than anytime in the past, thus the past is not a good model.<p>China is still in lockdown and their output isn&#x27;t as high as pre-pandemic levels. Everything China makes pervades into everything we do in developed society. From high-tech chips to low-tech plastic stuffs.<p>Until China decides to open back up, prices will continue to increase. And until then rates will continue to go up to try to incentivize people to save.<p>I see this alleviating in 2nd half of 2022, thanks to China relaxing Covid restrictions.