stagflation

[shah269 0]

http://en.wikipedia.org/wiki/Stagflation

In economics, stagflation is a situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high. It raises a dilemma for economic policy since actions designed to lower inflation may exacerbate unemployment, and vice versa


Are we there? Have we been there for a while?
The price of everything is either going up or staying up.
Inventories are either non existent or very shallow. Demand just isn't there for anything. Cars, homes, heck even food....

For those of you who lived through the late 70's how did we get out of it?


And can it be replicated?

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[guineapiggie101 0]

Not sure if we are in stagflation.

Yes, prices are up for everything, esp gas prices in CA (gal of regular is over $5 in some places).

There is still demand. If you go out on any day of the week, esp weekends, you'll see that restaurants are still crowded, people are still traveling, hotels are expensive, etc.

I'm planning to go to SF this upcoming weekend and hotel prices are already sky high.

[Gravitymaster 0]

Yes, you just need to have faith in Hope & Change.

[kelpdiver 2]

you might want to review the interest rates of the 70s and now. While there are many debates over the true interest rates (and the price of gas has nothing to do with inflation), it's not remotely what we saw at that time.

[shah269 0]

Kelp,
I understand that the interest rates on homes was well over 14% at some points during the 70’s.
However one could argue high interest rates, though not the best for the economy were not a true detriment for they provided the middle class with a substantial tax write off.
While now, with many in my shoes, we are living in homes with negative equity and low interest rates. So my generation is paying high prices and receiving little to no tax benefits.

As for people still eating out, yes I see it, but that seems to have become engrained in our collective psyche that we can and should do it. But if you look around the restaurants are providing incentives for getting people in. Case in point Olive Gardens revolutionary get one plate and get one to take home.

Sadly when I was going for my EMBA we discussed and studied inflation and deflation but however stagflation was not extensively covered due to a lack of time.

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[Fearjoburg 0]

Quote

stagflation was not expensively covered due to a lack of time.

Yes stagflation is expensive.

[weekender 0]

>"I understand that the interest rates on homes was well over 14% at some points during the 70’s.
However one could argue high interest rates, though not the best for the economy were not a true detriment for they provided the middle class with a substantial tax write off."

One could argue that the moon is made of cheese, that doesnt make it an argument with merit, though. by your own internet definition, we are not in a stagflation period because interest rates are at historical lows.

What inventories are kept high anymore? inventories are kept low in almost all industries to reduce cost mostly. your statement is so broad that its impossible to even comment on intelligently though. inventories are cylical and only changes from one period to the next are indicators. Of course, that is also only in certain industries that are considered leading indicators anyway. i can show demand this quarter for NAND Flash and DRAM was high and supply could not keep up. But that is meaningless unless compared to a specific and apt time period. you dont mention anything specific so your entire comment is just yelling. i dont think you studied inventory cycles are understood the lesson if so.


the tax write off is less than you are going to pay in interest expenses. it is put in place to encourage home ownership by politicians who hope people with EMBA's dont understand finance or basic math. Even if it wasn't, when interest rates are at 14%, you still have other costs than your home inflated that would cleary off set any "savings" you got from the write off.

you state demand is not there for anything. again, that is so broad that your comment is meaningless. Demand is high, as stated above, in semi's, disproving your "anything" comment anyway.

you ask how we can get out of it but you never proved we are in it. actually, you the opposite by admitting interest rates were low. read your own definition and find something else to talk about that you understand better.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[Andrewwhyte 1]

We are not in a stagflation period because there is very little inflation. Stagflation occured because policymakers looked at the Phillips curve (positive correlation between inflation and employment) and mixed up the causality. While the standard Keynsian Aggregate Supply/Aggregate Demand map shows increased demand causes prices to rise, policy makers decided to pump up the money supply to make prices rise in order to increase demand.
The Nobel winning work by Milton Freidman showed that unexpected inflation caused an increase in aggregate demand. In subsequent periods, once the inflation expectations have been integrated into the economy, the effect is lost. In fact there is a backlash as workers attempt to recoup purchasing power. Now you have the stagnation of the economy you started with but at a higher sustained level of inflation. The only way to keep the increased AD in subsequent periods is to accelerate the increase in inflation to an even higher level. This period is currently known as QE3.
In 1980 The union I was working for was offered a three year contract with 10%, 11% and 12% increases. We were outraged as that would only keep up with expected inflation and do nothing to alleviate the loss of purchasing power we had lost from the unanticipated inflation from previous years. Clearly we are nowhere near expected inflation of 10% or more per year.
Stagflation is coming but not yet.

[kelpdiver 2]

Quote

Kelp,
I understand that the interest rates on homes was well over 14% at some points during the 70’s.
However one could argue high interest rates, though not the best for the economy were not a true detriment for they provided the middle class with a substantial tax write off.
While now, with many in my shoes, we are living in homes with negative equity and low interest rates. So my generation is paying high prices and receiving little to no tax benefits.

this is a failure in basic finance, Shah.
How much is that tax deduction? It's your marginal tax rate (presuming AMT doesn't come into play). So in a tax state like CA or NJ, this is in the 35%-40% region. Which means if you are paying more interest, you're losing 60%!

Given a choice between paying 4% or 14%, it's a no brainer which one is better.

And remember your (continuous) rants about how the lousy refi programs for people like you who were underwater was discouraging economic activity? Same pressure was there in the 70s when fewer could afford to buy houses at those interest rates.

[shah269 0]

Kelp, Weekend
Thank you I'm learning more and more. Just because i have my masters doesn't mean I'm done learning more.

In my view, and this is just my view, if a home has negative equity, you are just filling a hole.

If a home is financed at a high rate well sure you are filling a hole but it's not as deep for you get some of that back in terms of a mortgage deduction?

So in theory, shouldn't some of that money help lubricate the ecnomy and get things going again? Rather than 100% of it going into some hole?

That said, what were the tools that were put into place that brought us out of the stagflation years of the 70's?

Was it a technology or was it political?


As for me, I would like to thank the president for allowing me to refinance my place at a lower rate and at the same term. It wasn't much but I did save my self $200 a month which is nice.

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[kelpdiver 2]

Quote

In my view, and this is just my view, if a home has negative equity, you are just filling a hole.

If a home is financed at a high rate well sure you are filling a hole but it's not as deep for you get some of that back in terms of a mortgage deduction?

So in theory, shouldn't some of that money help lubricate the ecnomy and get things going again? Rather than 100% of it going into some hole?

WTF?

300k home, 250k mortgage at 4% for 30 years. 1506 monthly payment. 177k in interest payments will be made.

Change that to 14% interest and the payment balloons to 3275/month, an extra 1721. 805k in interest payments over the life of the loan.

Definitely a different mix in interest versus principle. And yes, that includes an additional 251k in tax savings over 30 years. The problem is that you paid a net extra of $554k to those bankers you hate so much. So you lubricated their economy, yes, but that's not what you meant.

Now it's true that housing prices are inflated a bit in 4% land, and depressed a bit in 14% land. But no matter how you cut it, the mortgage deduction doesn't make you money. It saves you if you're going to be paying interest anyway. But that's just as true at 4%.

[weekender 0]

>So in theory, shouldn't some of that money help lubricate the ecnomy and get things going again? Rather than 100% of it going into some hole?

i do not accept the premise that paying your mortgage is throwing money down some hole. therefore, i cannot comment on your theory.

you have a contract with the bank. you freely agreed to the terms. you are paying back money borrowed to put a roof over your head. i dont understand why you feel its money wasted. paying more than you'd like on a home is better than the alternative of being homeless. unless you have a time machine, its your home till you default or sell it. maybe you would be happier if you acccepted that, enjoyed it and moved on with your life.

OR you could make post 167 about your home mortgage and be misrable.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[shah269 0]

Kelp thank you!
Now i see it.

Back in the late 70's with the banks making out so well, how did the nation and the world get out of the stagnated state?

Can we replicate what was done or perhaps due to China and our current efficient work structure that what was done in the past just won't work now?

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[Andrewwhyte 1]

Stagflation ended when the FED stopped printing so much money. This led directly to the '81 recession.

[shah269 0]

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Stagflation ended when the FED stopped printing so much money. This led directly to the '81 recession.

Oh shit!

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[shah269 0]

So for you guys who were around back then.
How did we get out? And is it even viable anymore?
I recall back in the 80's we still had a good number of factory jobs and China was just a poor third world country.

Seeing how that 7%-10% unemployment is almost the new normal and prices either holding steady or climbing. How can we pull out of this flat spin?

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[ShcShc11 0]

This isin't stagflation but anyway.

[shah269 0]

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This isin't stagflation but anyway.

The price of food is going up due to the price of energy going up so can't it be argued that we are in fact in an inflated state?

I mean i know looking at my shopping bills over the past two years...i would say i'm paying a little more than i did a few years back.

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[pirana 0]

Quote

Back in the late 70's with the banks making out so well, how did the nation and the world get out of the stagnated state?

Can we replicate what was done or perhaps due to China and our current efficient work structure that what was done in the past just won't work now?

Short version: We didn't fix anything - we engaged in stall tactics such as working more hours, increased productivity, sending women into the workforce in mass (basically making the 2-earner family the norm). All we did was delay the inevitable for a few decades. What made the tactic even more or a disaster is that the income situation we were propping up by heaping hope on the back of labor is that labor was actually becoming less valuable due to global competition. Now he we are, 40 years later, totally fucked, no way out, and seeing boogeymen in everything and anybody not like us.

" . . . the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging them and kicking them into obedience." -- Aldous Huxley

[shazz 0]

SHIT!

[ryoder 1,380]

"There are only three things of value: younger women, faster airplanes, and bigger crocodiles" - Arthur Jones.

[Andrewwhyte 1]

Quote

So for you guys who were around back then.
How did we get out? And is it even viable anymore?
I recall back in the 80's we still had a good number of factory jobs and China was just a poor third world country.

Seeing how that 7%-10% unemployment is almost the new normal and prices either holding steady or climbing. How can we pull out of this flat spin?

The way we got out of stagflation in the '70s is the FED stopped printing so much money. This resulted in the recession of '81.
As for priced holding steady or rising. There were no prices holding steady in the late '70s. You really don't get it if you think this is an inflationary cycle; stagnant yes, inflationary no.