energy prices in the US hit new records
Energy prices reached a new high in the US in February, finally climbing above the previous high set in July 2008. The Federal Reserve's efforts to combat rising prices at that time led to the Great Recession. This time the Federal Reserve has done exactly nothing to combat rising prices, overnight interest rates are still near zero and the money supply is still growing at double-digit rates.
I saw a journalist refer to these increasing energy prices as "complicating the Fed's efforts to fight inflation" ... but there have been no efforts to fight inflation. The Fed is doing less to fight inflation now than at any other time since at least 1955. It's like being a passenger in a car that is speeding toward a wall and the driver just keeps talking anxiously about how much they might hit the brakes later this year, but they don't want to slow things down too much.
Forecasting inflation is a difficult game, but I don't imagine it will go away all on its own while interest rates remain near zero and the money supply grows at 12%. A neutral overnight interest rate right now would be 9%, and I've seen nobody contemplating that the Fed would increase rates that high. The futures market sees interest rates rising to 2.25% over the next 18 months. Any rational model based on the past 70 years of economic history would expect interest rates to rise much higher than 2.25% when inflation is running at 8%. The last time inflation was this high, interest rates were 13%.
This lack of action makes me wonder whether we're setting the stage for a bout of hyperinflation. I'm starting to wonder whether my pile of retirement savings is about to become worthless -- but at least our mortgage would become worthless at the same time, boosting our home equity -- but the options for investing my retirement savings are limited to stocks and bonds. Neither of these investments does well during hyperinflation, although stocks have more upside potential over the long haul. But stocks are still pricy compared to their underlying earnings, about as pricy as they were in 1929 or 1999, stocks could fall by up to 80% during the next recession.
Although it doesn't really bite somebody like me, my salary isn't keeping up with inflation either. And I never received any pandemic cash.
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In other news, the house is so quiet today! I need to start doing some chores, then I need to be ready to work for a while. Maybe I'll go on a walk later once temps get above freezing.
I saw a journalist refer to these increasing energy prices as "complicating the Fed's efforts to fight inflation" ... but there have been no efforts to fight inflation. The Fed is doing less to fight inflation now than at any other time since at least 1955. It's like being a passenger in a car that is speeding toward a wall and the driver just keeps talking anxiously about how much they might hit the brakes later this year, but they don't want to slow things down too much.
Forecasting inflation is a difficult game, but I don't imagine it will go away all on its own while interest rates remain near zero and the money supply grows at 12%. A neutral overnight interest rate right now would be 9%, and I've seen nobody contemplating that the Fed would increase rates that high. The futures market sees interest rates rising to 2.25% over the next 18 months. Any rational model based on the past 70 years of economic history would expect interest rates to rise much higher than 2.25% when inflation is running at 8%. The last time inflation was this high, interest rates were 13%.
This lack of action makes me wonder whether we're setting the stage for a bout of hyperinflation. I'm starting to wonder whether my pile of retirement savings is about to become worthless -- but at least our mortgage would become worthless at the same time, boosting our home equity -- but the options for investing my retirement savings are limited to stocks and bonds. Neither of these investments does well during hyperinflation, although stocks have more upside potential over the long haul. But stocks are still pricy compared to their underlying earnings, about as pricy as they were in 1929 or 1999, stocks could fall by up to 80% during the next recession.
Although it doesn't really bite somebody like me, my salary isn't keeping up with inflation either. And I never received any pandemic cash.
-----
In other news, the house is so quiet today! I need to start doing some chores, then I need to be ready to work for a while. Maybe I'll go on a walk later once temps get above freezing.