Inflation or Deflation - What Happens Next?
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- čas přidán 1. 05. 2024
- With such an unprecedented synchronised global growth shock and fiscal and monetary stimulus, many people think that we will get either deflation or inflation over the coming months. This video looks at the causes of deflation and inflation, how fiscal & monetary policies can influence it, what history can teach us and we examine some of the forecasts about what will happen next.
Here is the link for the FRED inflation probability graph I mentioned in the video fred.stlouisfed.org/graph/?g=...
Video timing with thanks to Complex
00:00 Intro
00:54 What is inflation
01:12 changes in inflation incl. deflation (price of loaf of bread)
01:50 consumption baskets
03:27 What drives inflation? (different types of inflation)
05:16 size of Fed's balance sheet increasing
06:14 why didn't all the money-printing stimulate a "huge bout of inflation"
06:30 the Velocity of Money
07:30 Yellen on why no inflation
07:45 NAIRU
08:50 the Liquidity Trap
09:42 Who controls inflation
10:35 value of stocks depends on inflation; valuations highest around 2% inflation; equity de-rates either way
11:24 Hyperinflation
12:00 case of Zimbabwe
12:40 case of post-WWI Germany
14:00 hyperinflation helps/hinders if ...
15:10 Deflation
16:00 inflation 1870-1920
16:28 deflationary spiral
17:38 deflation helps/hinders if ...
18:34 What to watch
18:42 FRED/Price Pressures Measure (PPM) index
19:26 PPM model description
19:50 BoE Monetary Policy report, fan charts
20:34 Forecasts
22:00 forecasts of NIESR (UK)
22:44 negative interest rates in Euro-zone
23:40 conclusions
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Quick question!? 20k GBP. What would you do with it during the current crisis? Buy gold/silver, stocks or keep in cash
00:54 What is inflation
01:12 changes in inflation incl. deflation (price of loaf of bread)
01:50 consumption baskets
03:27 What drives inflation? (different types of inflation)
05:16 size of Fed's balance sheet increasing
06:14 why didn't all the money-printing stimulate a "huge bout of inflation"
06:30 the Velocity of Money
07:30 Yellen on why no inflation
07:45 NAIRU
08:50 the Liquidity Trap
09:42 Who controls inflation
10:35 value of stocks depends on inflation; valuations highest around 2% inflation; equity de-rates either way
11:24 Hyperinflation
12:00 case of Zimbabwe
12:40 case of post-WWI Germany
14:00 hyperinflation helps/hinders if ...
15:10 Deflation
16:00 inflation 1870-1920
16:28 deflationary spiral
17:38 deflation helps/hinders if ...
18:34 What to watch
18:42 FRED/Price Pressures Measure (PPM) index
19:26 PPM model description
19:50 BoE Monetary Policy report, fan charts
20:34 Forecasts
22:00 forecasts of NIESR (UK)
22:44 negative interest rates in Euro-zone
23:40 conclusions
Cheers, bro
Hi Complex, another great job, much appreciated! Ramin
Brilliant. Thanks.
Quick question!? 20k GBP. What would you do with it during the current crisis? Buy gold/silver, stocks or keep in cash
At 16:00: "Central Banks are on your side. They protect you from this wild swings in the prices of goods and services." Haha!! In other words: They protect me from prices going back down after they rose. Thank you!! Sooo much!
Hi Robert S. hyperinflation is a terrible thing, as is deflation as I try to show in the video. The Fed does its best to stop that from happening. If you read accounts of the food riots during periods of hyperinflation in Germany or hunger during the Great Depression (a period of deflation) you might feel differently about the importance of keeping prices stable and the importance of what the Fed is doing. The Fed needs a little love. Thanks, Ramin.
@@Pensioncraft Thank you very much for taking the time to answer my comment! I totally agree, that hyperinflation is a terrible thing, I guess so is deflation. But I find it difficult to consider a 2% price increase per year, i.e. exponential growth, as "stable" prices. It would be interesting to see the CPIs total change from 1870 to 1920 and also the same CPI from 1920 to today. Best regards.
@@Pensioncraft the Fed have luckily found a magic money tree to protect us all! Great video, really solid stuff, so a big thank you for putting out such comprehensive explanations. Unfortunately all this central bank stimulus, which lets face it is just more bail outs for banks and businesses deemed too big to fail, only prevents real price discovery. The money to main street is chum change compared to the alphabet soup of packages the Fed have rolled out to the big boys most of which are probably illegal under the US constitution and Fed reserve Act 1913. We have a debt bubble, asset bubble and confidence bubble all of which the Fed raced to reinflate before they went pop with dramatic effect. No one should show Fed love since the Fed run by Volcker - a chair who took his responsibilities seriously . The Fed created this problem, they are making the problem ultimately worse and as usual it will be the little guy that pays for it literally and figuratively speaking. So, no, I am not in the slightest bit grateful to the Fed and nor should anyone else be. We have more central planning and therefore misallocation of resources to look forward to. They will be powerless to shrink the balance sheet and unable to stop dropping the poisoned fruit from the magic money tree.
@@Pensioncraft
Ramin, nice job on your presentation. However, have to disagree that inflation is a good thing for the country or the average citizen. In fact even Allan Greenspan, the FED central bank chairman for decades, and the architect of the start of massive central bank interventions, is quoted as saying that "zero inflation" is the best alternative for the majority of a country's citizens.
The natural state of modern economic activity is deflation. Free markets, competition, price discovery, innovation, scale, technology, invention, productivity, and a whole host of economic factors SHOULD result in more and better quality of goods and services and at lessor relative prices. That is natural deflation. That only seems logical and consistent with how modern economic activity works. We are not talking about hyperinflation or hyperdeflation ... those are both extreme cases, and not the norm of what we should from normal and ongoing economic activity. However, natural deflation is not what we see in modern economic society. What we see is artificial and forced unnatural inflation ... predominately created by government, central banks, and large business (oligopoly/monopoly) because they can and because it essentially benefits themselves the most.
Furthermore, the reporting of and accuracy of BLS/CPI inflation numbers in the USA and probably most other western countries is also highly suspect. The government, central banks, and largest economic entities have vested interests in under reporting what "real" inflation numbers actually are. For example Shadow Stats and the Chapwood Index are both alternative inflation measures which significantly disagree with BLS/CPI reported inflation numbers. BLS/CPI has reported low inflation numbers in the 1-2% range for years now, whereas Shadow and Chapwood consistently report inflation numbers that are about 4-5 times highe
In short, this whole discussion about inflation vs. deflation and about massive central bank control and massive interventions in economies is highly debatable. In addition, it is also highly debatable if such is really in the best interests of the vast majority of american or worldwide citizens on balance. There is a reason for the massive growing wealth inequality in the USA and the world today. And arguably inflation and massive central bank control and interventions are a significant part of that problem. Certainly not the only cause of that problem, but nevertheless, a major part of it. .
@@coreyham3753 It would be good to know whether the way central banks measure inflation looks at real-world and median purchasing behaviour, vs just a mostly-static list of things to track (even if this list is diverse).
For example, most average people won't be buying vegan-specific food, and most people would be buying more of the reducing-cost goods (such as mobile phones and laptops etc, which average households will have many of now, vs maybe 1 or 2 about 15-20 years ago).
If say they track 'what does an average mobile phone cost?' that is going to give them a much lower inflation number, versus 'how much do people spend on mobiles and related devices, in total?' - only the latter would be a real-life number.
I am coming from Peter Schiff podcast. What I like about your videos is that they are built on solid/real data, than plain hypothesis. Keep up the good work!
they are opposite on their conclusions on inflation. Peter pumps Au buying as a hedge for inflation and has a vested interest on it. It does not matter the price of Au for him as it is the 1-2% commission he makes on every transaction what he cares regardless it Au goes up/down or you buy/sell
Gregorio Murtagian Au?
good man gold
@@goodman8498 Aurum/Gold
Hi Akshay thanks! Ramin.
This is the best explanation of what may happen in relation to inflation or deflation particularly during the virus crisis. It also contains an excellent historical perspective on these issues and the role of central banks.
“Just remember that central banks are in your side” .... may be the most rediculous statement in financial history !
*on
What about the reduction in purchasing power as a result of the new money injected into the system.
Even if that money sits in a few bank accounts and never enters the transactional economy its mere existence still dilutes the money that was already in circulation.
Also the fed has been manipulating inflation figures for a long time. Even the metric they use (core cpi) is off, energy and food are excluded because they're too volitile? People still have to consume those items regardless of the volitility.
Deflation first. Inflation will come after the crisis, once all the printed money starts to circulate.
Yes - severe deflation first. Then the FED and central banks will go insanely crazy with stimulus and negative interest rates. And it won't work because people will just move to cash and won't spend. Then the FED will go into full blown tyranny mode. They will force spending by outlawing cash and mandating a digital dollar with a very short expiration date. The effect will be an instant hyper-sonic velocity of money and the fastest and most extreme hyper-inflation the world has ever seen. The FED will have no time to react. The dollar will be dead, and everyone who still owned any dollar denominated assets will have zero purchasing power. All savings, retirement accounts and pensions will effectively will be gone... Society will experience a severe collapse - only those in rural areas who are already mostly independent of the system will have a good chance to survive. The FED is NOT your friend. They are parasites and thieves. They produce nothing and steal everything.
they stoped printing since the 2000 they just pot zero's and enter it in computers dont u remember 2008 crash they printed it in computers and it vanished inside the big banks so theres no money being printed its all Digital and crypto is the godfather they hate loooooool
@@kdanagger6894 Thank you for your comment. How fast will this become reality you think? And do you think it's wise to buy a bit of Crypto as Raoul Pal suggests? I'm in doubt if I should buy btc now because of the halving hype which increased the btc price a lot.
@@kdanagger6894 if you think dollars will be dead, no more value, can you send yours to my way???:-)
Andrei that’s what economists are trying to tell you. It’s inflation then deflation, boom and bust not the other way around. But then again I could be wrong, so buy now and then sale later
Amazingly researched & informative as always.
Thank you! Ramin
Thank you for explanation. It’s so clear and easy to make sense, event thought I don’t have too much knowledge with economics.
Thanks Song Leuang I'm glad it was helpful! Ramin
Love your videos and always learn something from them. I’d be interested to know more about how the price of oil plays into this story given anti correlations with the dollar. Could a sustained drop in oil demand hold the dollar up? If we do see US inflation above 2%, could that cause an over correction in oil prices? Does this make oil a good inflation hedge? I always see mentions of gold and TIPS but never anything about oil.
Whats your opinion on the reasoning to leave out the price of housing out of the inflation figures? If it was included inflation would surely be way over 2%
Great video, very much to the point. Two minor issues that could be leading to misunderstanding: the explanation seems to suggest that the causation goes from unemployment rate (deviations from NAIRU) while the supposed causation is indeed the inverse (overstimulation leads to lower unemployment and an inflationary gap which then causes inflation). Secondly, viewers might wonder why the central bank reduces the interest rate if that causes investors to hold money. It is correct that a lower interest rate reduce the opportunity costs of holding money, but the central bank wishes to encourage in investment spending. While a lower interest rate makes it less attractive to put your money on a bank account, at the same time, it renders investments more viable since it also decreases the cost of investment. Thus, the credit crunch is a particular phenomenon.
Thanks for the video. As an economist myself, I enjoy freshing up my knowledge. Could you please make a second one including more concerning seasonal adjustments, disinflation (I doubt there will be deflation) etc.? That would be great!
Quick question!? 20k GBP. What would you do with it during the current crisis? Buy gold/silver, stocks or keep in cash
How about inflation for asset class like real estate? Is it a good hedge against liquidity trap or high unemployment (assume high umemployment being temporary)?
So do you separate inflation by market or asset type? Like could CPI go up by 5% while the us stock market drops 15%? Gold up 30% and stocks stagnant etc?
"Central banks are on your side" OMG that totally cracked me up :D:D:D For the most part the video was decent but that was too much.
Thank you for watching. Ramin
Yes central bank is on your side that’s why we are slaves and they our permanent masters lol
@@johnsonkids3058 please explain how you are a slave in any reasonable definition of the word.
James Oates, you must be one of central bank owners to not know that we are slaves. We work non stop for some small credits so we can retired but we can’t because our credit is destroyed by someone.
@@johnsonkids3058 modern inflation averages at 2%. Retirement savings will yield around 7% on average. Please show me the destruction you speak of.
I think it is inaccurate this time to say that money supply has increased and goods and services remains the same.(5:05) It would be more accurate to compound/consider the effect of workforce staying at home. 😊Thanks Ramin
Very informative. 25 minutes well spent. Thanks!
Glad you enjoyed it! Ramin
Would you mind listing the web address for the Inflation Probability graph? I tried the web link on the video and it didn't work.
Here it is i'll also add it to the description of the video. Thanks Ramin fred.stlouisfed.org/graph/?g=qIVp
Thanks. The analysis is very educational. can you please highlight the possibility of a stagflation? I feel like you didn’t give employment enough focus at the end. Thanks.
Hi Ramin. Excellent video again. well researched and data driven!
Now, keeping this inflation scenario in perspective can you share your thoughts on how it may play out in stock markets. no signifiant inflation swings that means P/E will be more or less as it is(around ~20). earnings season is on going, but if P/E remains same and earnings goes down by 20% SP500 should be around 2200 in my calculation. would love to hear your thoughts. kind of mixture of 'is it good time to invest' + 'what to buy in stock market crash' + 'this inflation video' . thank you!
Oil price? What is to follow?
Thank you for your excellent explanations of important economic topics. I like the straight forward and calm demeanor of the British in general with no bluster and pomp. This is unlike the typical American approach (where I live).
Thanks for watching science love. Ramin
19:25 as a finance and economics nerd I liked that graph 😂
Hi mmgoicochea as one nerd to another, I'm please you liked it and thank you for watching. Ramin
This video was surprisingly thorough while also being accessible to non-economists. One thing I think is missing is the idea of "Mix-flation" in which some things like vital food and other goods goes up while the value of things traditionally used to store value shrinks. Or the other way around. So it is possible to see the value of Cash, Stocks and Gold all fall in relation to Food and Energy because those things are not being produced or distributed correctly. No amount of Gold or Stocks will buy you a loaf of bread if there aren't any to be bought. I bring this up because we are seeing massive supply problems as a result of worldwide reactions to CV-19.
Great videos I'm learning a lot! Could you discuss how the recent drop in oil price and futures will impact the economy moving forward? thanks
Thanks Nelson Great suggestion! I think this may be my next video. Ramin
Thanks well done 👍 great and informative
Thanks Dr A&B, Glad you enjoyed it. Ramin
Why are people in the comments complaining about central banks? The fed and ECB have literally prevented an financial crisis by intervening so early on compared to 2008. My portfolio has almost recovered from the 30% loss this year.
Hi Karma I agree, I think the hostility toward central banks is completely misplaced. Just look at equity markets before and after the Fed's announcement on March 23rd to see how they are helping restore confidence and availability of credit and liquidity. Thanks, Ramin.
Yeah the FED has not prevented a financial crisis. Not even close. They may have good intentions, they may try their best and create the appearance of bailing everyone out and playing along with Congress with "QE infinity." But the FED cannot really do that much, at least nothing helpful. What they do is create a facade that they are in control of things to instill a false confidence in the market and financial asset prices in general.
The worst case scenario is that the FED crosses the Rubicon like the Bank of England did. When the central bank seizes the power to spend directly instead of having mere lending abilities, all restraints will have been thrown aside. The sheer ease of simply papering over economic problems will be too much of a temptation to resist. And these problems will only be exacerbated by the current policies of "stimulus" and bailout loans. In fact, we have already started down the road to financial Serfdom with the FED's recent plan to, for the first time in US history, purchase corporate bonds in a clear violation of the Federal Reserve Act. But even with lending abilities alone, the power to increase the money supply (inflation) is within the FED's clutches. Bernanke said, as they all do, of QE that it is a temporary increase in money supply. But that is not true, and it is even more obviously not true now with the balance sheet exploding by more than all of the past QE's combined.
Absolute power corrupts, and unlimited money-creating power corrupts absolutely. Even with a quasi-restrained federal reserve, we will see some level of significant price inflation in the future (where it will happen remains to be seen). The only alternative is a continually decreasing velocity of money which will spiral the economic system into Depression.
Amazing analysis, thanks a lot for your effort, subscribed. 👍😊
Would the economy collapses faster in a high inflation or a deflation scenario? Thanks for the response.
As a complete outsider to economics, that inflation modelling looks like it could be easily manipulated?
Great content... intelligent structured, balanced, thoughtful - i dont see much of this kind of quality analysis on youtube.. this is something i would normally expect in a class of a top MBA program... thank you
Thank you Alex A that is much appreciated
As always, great video Ramin with incisive analysis supported by facts / graphics!
Thanks for your support SatWiz and thank you for taking the time to leave a comment. Ramin
Great in-depth content as always 👍
Glad you enjoyed it! Ramin
The Master returns with another great video. Thank you
Hi syncbrother thank you! Ramin.
Wow I can actually sit down and watching this and understand it!
Hi Crystal that's great! Thanks, Ramin.
Thanks Ramin! Another great video.
Glad you enjoyed it. Thanks Ramin
This is extremely relevant and in depth.
Thanks Casey Burns Investing, I'm pleased you liked it. Ramin
Yes! I was making an análisis just yesterday about the inflation and repercussions on fixed income. Since I’ve heard this is the end of fixed income era as we know it.
Quick question!? 20k GBP. What would you do with it during the current crisis? Buy gold/silver, stocks or keep in cash
Thanks so much for doing this, I've been wracking my brain for weeks over it.
Happy to help! Ramin
I’m thinking asset price deflation, and consumption price inflation at the same time.
Thank you for the lesson!
Are you an economics teacher?
Hi Nomad Tours & Rentals, Before I started PensionCraft I was a strategist and I also spent two years teaching finance in an investment bank. I have been known to tutor physics but i'm not an economics teacher. Thanks for watching! Ramin
"central Banks are on your side"...ha.
@tzar 1917 What? I don't understand your post. Care to clarify?
@Hammer Smashed Face u mean they created the virus or they created wealth and poor people all over
I thought that was funny too. Honestly though, what he should have said is something like..."they are in bed with us albeit they are the alpha in the bedroom".
What do i click on to get to that chart ? I can't find it fred.stlouisfed.org/
Hi jeffrey carusotto it's in the video description but here it is as well. fred.stlouisfed.org/graph/?g=qIVp Thanks for watching. Ramin
Inflation is the biggest destroyer of your money
Nope. Inflation is the destroyer of savings. Distrust is the destroyer of money.
david, so you think inflation will rise?
It doesn't destroy money just moneys spending power. That's why it's best to invest in things that beatout the current rate of inflation over time.
Inflation is a good thing, but not for those who store cash. You have to have some sort of inflation to grow wealth and assets. It's best to have assets.
now i'm wondering if i should have invested in a hedged ETF as opposed to unhedged, guess i need to do some more reading lol.
Nice video, thx! I hardly figure out how the Velocity of money (both M1 & M2) can go down further as it currently reaches an all time down (at a lower rate since 1960). At the same time, the money supply that has been injected in the economy is already twice as much important as it was in 2008. On the supply side, we already see that some prices (airflight tickets, ag commodities, livestock prices) are going up because of the difficulties of the covid outbreak. I think that the most important surprise of the market for the next 12 to 18 months would be a higher inflation than everyone would expect. That could have a huge impact on the bond market.
Hi C Mat, Thanks for watching and taking the time to leave your comment. Ramin
Superb explanation of monetary economics 🤓
Glad you liked it! Ramin
So how do central banks reduce their balance sheets without a crash? Seems like the fed will just keep increasing the balance sheet to infinity until they own all assets. See Japan where the BoJ owns most assets including equities with sluggish gdp growth.
They are loans, so they will have to be paid back.
@@justfasial01 No, loans will not "have to be paid back". At least, not in practice.
Defaulting is still another option for governments in "developed" economies.
The only entity that seems to be hell-bent on keeping the repayments mandatory seems to be the IMF, which is not a governmental institution.
The Fed have shown one thing over the last 12 years; they can't reduce their balance sheet without crashing the equities market, Dec 2018 proved that. They jumped in with half a trillion to bail out the banks Sept/Oct 2019 in the repo market. More fake money pumped in. Hard to see how in the medium/long term we won't get hyperinflation (above 50%). The Fed will have to put everything on their balance sheet, they already have Blackrock as an agent buying up the junk bonds. What next?
@@Mcckevy2 The main issue with the Fed and the American government is that they have over-leveraged their economy (and wealth) way too much into the global markets. They tried to support non-US economies/governments/societies by betting on big future returns (cheap imports, cheap foreign RE, cheap commodities, USD-backed trades), signing agreements left and right. They are like archetype of the "new rich" who wants to do grow fast and therefore needs to be the first hand that gets the new money (i.e monopoly).
That's why a situation like the Coronavirus pandemic is such a catastrophe for the USA on many aspects: not only they have the highest number of cases and deaths, but they also are cut out from their suppliers, their GDP that relies almost exclusively on retail consumption is stopped in its tracks. This has just highlighted the gigantic holes existing current US policies (i.e globalism).
I am not surprised by Trump's return to nationalist policies of "Americans first, Fxxx the rest of the world." He just wants to re-focus on the US economy as an emergency. Unfortunately, he is too late: globalisation is well entrenched in the value of the USDollar and the US economy simply cannot do without the world. His presidency is a tragic tale of the awakened who took too long to take action.
In this context, is it any wonder that the Fed has no other option but to print and salvage whoever can be so that both the US economy and the Global economy don't fall on their face? Americans should be shocked that a big chunk of the money printed by the Fed is still going to Foreign Central banks through the Repo market at this stage, rather than being given to the US population. Because it reveals that the richest of the wealthiest Americans are invested much more overseas than they are in their own country. This has clearly become a national and generational tragedy.
Has anyone done a direct running comparison of the various predictive models the central banks use vs what actually ends up happening as the previously predicted time frame unfolds? In other words, has anyone really taken a hard look at how well these models actually predict reality? And I don't just mean with shock events like Coronavirus (which couldn't reasonably be predicted, at least at any specific point in time), I mean in more mundane times or in times leading up to an economic crisis like what happened in 2008-2009? (that some did predict very well (like Peter Schiff, for instance)). The Fed always seems flat footed in everything it does and in many cases acts in direct contradiction to what is best. Any doubts, simply go back and watch Alan Greenspan's tedious Fed technobabble speeches he gave to a bored but flattering to Greenspan Congress during the mid 2000's in explaining why wide deployment of NINJA APR loans was a great idea.
If inflation goes up will the value of government index linked bonds go up. How do they offer protection against inflation, is it by the yield going up if interest rates rise
The interest payments from these bonds are linked to an inflation index and so you are always protected against inflation to some degree
What about house prices?
Even with your example of people not buying trucks and there being excess supply it doesnt mean prices will fall. Prices will only fall if sellers are prepared to accept lower prices, ( the alternative being the seller doesnt sell at all )
Anything that can be manufactured will lose its value lik cars, trucks.
We cannot manufacture real estate, it is fixed resource.
@@prasannakumaryr how do? If there are too many houses, too few people purchasing? There are ghost towns all across the modern world.
I have a small pp:(
@Patricia Trudgeon correct prognosis - that's why gilt edged vintage horology and fine art etc might paradoxically actually go up in value.
Barter Monetary Sistem, even slow in exchanging, but comparing with any another follwing monetary system (not only Fiat Money after 1971, but even Gold System) is the only sustainable one, besides being a minimalizer and environmentally undamaging including as a perfect global pupulation size/growth controller (1800 world pupulation was less than 1 billion while today 7,8 billions after just 220 years of capitalism age ). The reason, is that Barter System is the only one where the REAL VALUE and EXCHANE VALUE are unseparable physically and time. Besides, it is very limited for value deposit. Now, as the case is opposite with the other monetary systems. Here, the separation of the two values plus the limitless ability for the value deposit, leads not just to the continuing retirement of money (notes and/or gold) for saving, implies, continued shortage of circulated money, new emissions of money within all corelated problems/crisis. But also, a continued acumulation of wealth and powers in few hands (multi-millio/billionairism).
Citing central bank expectations about the inflation rate is folly. They are simply unable to predict the future. This is also true of the IMF's global GDP forecasts
Macro went 60/40 roughly Inflation. But central banks want sheep believe in inflation to bring in Yield Curve or Twist ( as I believe as a noob ); many think advancements tech continue and as FED cannot get inflation even at 2% we’ll be deflationary 03/2021 onwards. This said what SIPP suits best. Which blend. More bonds or more equities. It’s so tough comprehend
Another masterclass!
Thanks Ken! Ramin
Great video, thank you!
I'm pleased you liked it. Thanks Ramin
Love your work mate. Will be buying your course to support the channel. Jay Aussie.
Hi Joel Gillard, Thank you for your support and all your comments. Ramin
It’s hard to make a case for large inflation even with all the QE, Yes money supply is there but it’s not in the hands of regular people that buys goods.
What about the inflation of the stock market? I bet there will eventually be yet another bull run, with PE ratios breaking historical highs. Where else is that money printing going to go?
mnfchen We are probably already at stock market record highs from a (real) forward PE point df view, I think the majority of the extra money will go to writing off debt from government loans and bankruptcy
History shows that all governments that print money in a large/unlimited amount ends up with a default. Typical thinking in the beginning of the downward spiral is that things are not that bad. Huge money printing was bad, is bad and will be bad.
Jeff Y so do you think there will not be inflation or just inflation in certain markets? Eventually all this money printing should lead to long term with too many dollars out there. No?
mnfchen when you’re get inflation does interest rates go up or down?
Excellent- now I understand (I think). Thanks.
Glad it helped! Thanks Ramin
There are +20 recognised types of inflation, with divergent meanings. Be specific Pensioncraft - exactly which kind are we getting?
Brilliant work, Ramin - thank you! 🔥👍
Thank you too Andrew V! Ramin
Back in the 1960's, when I was in H.S., (class of 1964), I had a neighbor who lived in Germany during the hyper-inflation of the early 1920's. His father was a member of (some type of allied commission), and he was a teen-ager at that time. He told me than in 1920-21, or so, he could get a very good lunch (plus beer!) for about a (silver) U.S. quarter. In 1923 or so, when the inflation was so high, he could get that same lunch for a quarter (silver U.S. 25-cent coin)!
Thanks for sharing that story Jack. It's staggering isn't it? I doubt that's going to happen in developed markets but that's why central banks are so obsessed with inflation I guess. Thanks, Ramin.
@@Pensioncraft Yes, very staggering; that is why I made a few silver coin and bullion purchases over the years, as a hedge against inflation. Back about 10-11 years ago I sold some silver for about four times what I had payed for it, and after factoring in inflation, my actual net was 250%.
Why do I get that feeling every time video with brit ascent remind me M .I .6
Given the things people need like housing, education and healthcare have seen hyper inflated but is of no concern to the Fed means what they do is irrelevant to Americans
Good analysis. Thanks
Glad you liked it! Thanks Ramin
Another possible outcome is a sideways market, neither inflation or deflation, which in the long run is bad because there's no growth. Eventually people end up divesting in stocks and moving to bonds.
Ramin - I've paid for one of your courses but have no idea how to access it. Help!
Hi Mike, You should get a email sent to so the email you used so check your Spam folder otherwise I can email it to you directly if you drop me an email at support@PensionCraft.com
Sorry I forgot to say thanks! Ramin
great, as always!
Thank you Allenky! Ramin
Looks like the markets are returning. Do you think that’s a long term trend or we’ll have a second worse dip?
It's more than likely a dead cat bounce, and could go a lot higher, depending on how much fed prints, before huge drop over next couple of years. This is just my humble opinion.
Don't be fooled by the slight improvement - we haven't seen the impact of even the 1st months salary/payroll cash flow impact - many SME's have just 45-60 days cash flow and perhaps a further 90-120 asset disposal cashflow.... then they are done/finished ! The worst is yet to come and I predict the markets will take a further hit of 15-20% before Xmas!
Thanks you very much
You are welcome Chetana Sin. Thanks Ramin
Thanks for detailed explanation of inflation and deflation. liked and subbed. like #875.
Hi EasyWealthBuilding, Thank you for subscribing. Ramin
I'm wondering about what the banks would do in case of hyperinflation. It will write off the debts of people but will the banks let this happen?
This can ONLY cause inflation
Inflation/deflation is monetary supply related. To in any way focus on product prices is dangerous. Price drops are not bad in themselves. Wages are relative. Our wages could increase but if the value of the added income drops or raises at the same rate their is no gain from that wage increase. We WANT prices to fluctuate based on the market only. Our economy has experienced nothing but inflation. Even where prices may not have risen. Technology and productivity should be yielding consumers lower prices and or increased value in products.
The deceptive idea stated here is that the number of transactions has only a positive correlation with money receipts. Transactions and demand can increase and receipts $$$ can drop. That’s not bad in and of itself because the $ may have more value. Governments and banks have us accustomed to inflated money. They can then use dropping consumer prices as proof of some dangerous price deflation thus justifying further debt or increases in the money supply. This will result in their continued pursuit of more debt and not having to to reduce spending on programs. Since taxing people is so politically unpopular, governments hide taxing people by printing money.
Great video well researched and presented
Hi Peter, Glad you enjoyed it! Ramin
thanks!
You're very welcome gekkeredon! Ramin
I stay between both scenarios. I accumulate 1.5 months currency until more hits my account. I then drain the account and convert the savings into useful consumables like tea coffee, and other dry goods.
'Just remember that the Central Banks are on your side'? What information (that you provided me earlier to be remembered) should support this statement?
Hi Yuri, take a look at inflation before 1920 czcams.com/video/WFiJw6QoTL4/video.html That's what people are working incredibly hard at the Fed to avoid. Take a look at what was happening before the Fed announced its extraordinary monetary policy: equity markets in freefall, credit markets frozen. Then just listen to a single Monetary Policy press conference and listen to the tone of the Fed chair. The Fed and other central banks deserve our thanks not our criticism. Thanks, Ramin.
I’m a retired person, with a house that is payed for, social security, and a little cash in the bank. I would LOVE to see deflation.
Hi Robert Stanton, Thank you for watching. Ramin
If in a few years real estate sells for pennies on the dollar and the usa dollar is worth 4 cents and a pound of hamburger cost $80 and a gallon of gas cost $6 and an ounce of silver cost $170. Would this scenario by a result of hyperinflation?
One question: velocity of money is similar to demand?
That's kind of my understanding too. If people are spending (demand up,) velocity increases. If demand drops, velocity drops too. Not sure if it's that simple.
One question: what would you do with $10k? Put the dollar bills in the safe? Buy Gold? Buy Silver? Buy Govt bonds? Stock market?
From my experience so since December of 2018 I've been buying mostly silver (and in the last couple of months platnium) total of $11888, and it's now worth $13400. So a $1500 gain but had I bought gold instead I would've had a gain of $3240 so I'm a little bitter about it. But now that the prices of physical gold & silver are through the roof I wouldn't recommend it, for now cash is King and it'll probably be that way for some time so I would recommend sitting on that stockpile and waiting to jump in on the metals when they dip down significantly.
Utilities stocks re investment dividend 10k 1970. S. Pseg today 60k $ I just bought bp stock .
Silver .999 pure is the steal but getting harder and harder to find.
1911 Smoking Gun Keep it in the bank. If there is deflation , put it in the stock market. It’s only 10 k. What’s the point of buying metals. You buy metals when you have a lot of money, so you diversify. It’s hard to buy physical metals , then you have to hide it. If no deflation , then your money is in the bank.
All the above are good I have all .
Amazing! 😷👍✨
Thank you vcash! Ramin
Japan's central bank has been struggling to get inflation up for twenty years with buying everything but they haven't been able too deflation seems more likely.
And guess what? The central banks profit from these loans, as they are private institutions and in no way government entities(this was always the plan). 1% interest on a couple of trillion dollars is not a small amount of money, and not to mention, this interest drafted on this newly created "money" must also be paid back, so we must not only pay back the capital on these loans, but also the interest. This money does not, and never has existed, and don't be fooled, the VAST majority of this newly created debt will never be printed into paper currency, it will exist as ones and zeros inside a computer, and those ones and zeroes will be lent out nine fold(by means of fractional reserve banking, the biggest scam ever created, a crime against humanity of the highest order) as if they were currency(which they are not) backed by something resource or collateral based. These loans are dependent on the condition that people exist to pay back the capital plus the interest on these loans, which are presumably made under the prerequisite that no money exists to purchase the things that are necessary, thus making a loan necessary. If the government is broke(has been since 1913 America) and needs money to pay its bills, it will ALWAYS, ALWAYS be indebted to the master bank, because new capital must always exist to pay back the interest on money that doesn't exist, and because it doesn't exist, the inevitable conclusion of this state of affairs is an endless cycle of borrowing and repayment, all the while the bank is siphoning off comparatively small amounts of resource or collateral based capital and creating a vicious circle in the process.
Anybody saying that the central bank is "on your side" is suffering from the worst case of stockholm syndrome that can befall a person. Agreeing to this premise makes you a slave to them, a sneaky type of slavery that appears on the surface to be "normal" life, but is in fact the life of a workhorse, whose sole purpose is to repay the interest on loans exactly like these. These people are the enemy, and they are not on your side, you only think they are because you don't know what they're doing behind closed doors, and they keep those doors shut and tightly locked from everyone, even from congress. Read "The Creature From Jekyll Island" and get back to me.
What would happen if the FED increased the base rate to 100%? There would be instant deflation in asset prices but what would happen 1+ years down the line?
The economy has to adjust to be an economy with 100% inflation there is no other way it can work
The natural real rate of return wants to be close to 0% for safe assets
Borrows and lenders have to agree to 100% interest rate bonds and debt because the Fed sets the lower rate. The only way borrowers and lenders can agree on 100% bonds is if the borrower and lender both agree that in a year's time they will settle their debts with 100% inflated currency otherwise no borrowing and lending happens
The base rate in the medium to long term sets the rate of inflation in an economy. All other things being reasonably stable
Can also think of one currency Vs another
What would happen to the US dollar value of the fed increased the base rate to 100%?
The conventional wisdom is the dollar would rocket but this isn't physically possible. With the fed base rate at 100% the dollar would in the medium term fall because inflation in dollars would be at least 100% so the dollar value would continuously fall. Say one euro is worth one dollar today, next year one Euro would buy two dollars, the year after four dollars etc
The natural rate of return for safe assets want to be around 0% so whatever the base rate is inflation will move so the real rate of return is ~0%
If interest rates were 100% I would not borrow. Money would not pass from one person to another. I think most actors in the economy are price takers not price makers. I could not force 100% inflation.
If nobody borrowed velocity of money would likely slow to nearly zero and that economy would deflate. Interest rates can move faster than prices up or down.
I thought governments set high real interest rates to reduce inflation. Is this not correct?
You are right that if inflation is 100% and interest rates 100% the currency will still be weak. In this case real interest rates are 0%. I would agree with your model for inflation adjusted exchange rates.
@@badass6656 in the short term the base rate impacts inflation as per conventional thinking. If the Fed or BOE increased interest rates to 10% tomorrow the result would be instant deflation especially of financial assets and house prices
Let's say the Fed and BOE both did this, they won't but let's say they did. Okay we both agree on the initial market reaction
Fast forward 5 years what is the case now?
Well as you rightly point out no one is willing to borrow at 10% real rates of return. So the real rate of return needs to fall but how when the fed is holding base rate at 10%? the way it happens is the eocnomy induces inflation so inflation is 10% a year
And as such people act as now
10% inflation 10% rates = 0% real rates
And things continue just fine
Let's say in the first year there is deflation in financial assets and hosue prices. Then what after the second year and onwards? Many businesses have debt something like $20 trillion in corporate debt in America. The fed just increased the cost of this debt from 0% to 10% so corporate costs are now $2 trillion higher. What happens? Well they put up their prices by $2 trillion or go bankrupt. While individual business can go bankrupt whole sectors can't. How much do prices go up if corporates put prices up by $2 trillion? Well $2 trillion is 10% of US GDP so prices go up 10% that's convenient 10% inflation to counter 10% interest rates
Let me repeat again
In the mid to long term
The economic induces inflation to be a rate close to the base rate
America with close to zero rates will have close to zero inflation
In a different universe the same same America with 10% base rates would have 10% inflation
In a different world the same America with 100% base rate would have 100% inflation
The base rate induces inflation
The mistake conventional theory makes is to look at only first order effects. Sure if the fed increased rates to 10% today, the day after stocks shares and property prices would crash maybe 30%+ so that looks like deflation but it's deflation of financial assets as one single repricing. In the medium term corporates put prices up and induce inflation so always the real borrowing is close to zero
This fundamentally just makes sense
The fed or BOE manipulate interest rates
So the real economy has to reorder to stay functional. Whatever the base rate is inflation will tend to that so that real returns on safe bonds are close to zero
@@kaya051285 "While individual business can go bankrupt whole sectors can't". Why not? The coal industry, the car industry the steel industry in the UK all gone. The banking industry as we know it was nearly bankrupt in 2008. You have not explained where the demand will come from to pay the higher prices.
This is a very quick response. You have written a full and detailed reply I will read it tomorrow. I might have more to add.
"The economic induces inflation to be a rate close to the base rate"
We agree on this point. I would say base rates are close to the inflation rate but tomaeto, tomato.
I think we disagree on the reason why inflation and interest rates are so closely aligned in the long term. Again we agree that they are.
@@badass6656 Whole sectors can't go bust. The coal sector isn't an whole sector you can substitute gas or oil or nuclear or... For coal. So the energy sector can't go bust
Go to my example of government debt
Let's say the US has $20 trillion in debt and GDP of $20 trillion
If the fed increased base rate to 50% what happens?
Well the creditors who hold the $20 trillion in bonds will go to the government at the end of the year and get $10 trillion in interest. This will be paid in the form of another $10 trillion in bonds the government borrowed from the Fed. So now there are $30 trillion in bonds in the world. The year after these bond holders go to the government and the government gives them another $15 trillion in interest in the forms of bonds the government borrowed from the Fed. $20 trillion becomes $30 trillion becomes $45 trillion....the quantity of bonds is increasing 50% a year thanks to the fed who out up rates to 50%
What happens to inflation?
It too would be 50% a year, give or take
How can it be otherwise?
If you increase the stock of government bonds from $20 trillion each year by 50% then the inflation rate in other assets will be roughly 50% also
Fast forward 10 years and with the fed rate at 50% government debt went from $20 trillion (100% of GDP) to $1,153 trillion
What do you think those bonds are worth in real terms?
With the fed putting interest rates up to 50% do you think that caused deflation? How can it cause deflation when government stock of bonds go from $20 trillion to $1,153 trillion over the course of 10 years
With $1,153 trillion in government bonds in existence what do you think happened to inflation over those 10 years?
Your theory is deflation
Reality is inflation went to 50% a year give or take
@@kaya051285 "For coal. So the energy sector can't go bust" You say it can't but this is not theory or evidence we will have to agree to disagree on that one.
"Well the creditors who hold the $20 trillion in bonds will go to the government at the end of the year and get $10 trillion in interest".
Correct. But not as simple as it seems.
1. The interest is paid to banks insurance companies and pension funds.
2. Paid by whom. Home owners through their labour to be able to repay loans and interest and companies through their entrepreneurship.
A lot will depend on the level of real rates. if real rates are 50% the employee is not receiving any pay rises why would he/she take a 50% interest loan.
If s business is a price taker and cannot increase its prices 50% per year it cannot afford to service 50% interest.
I think we agree on quite a lot.
What you say has happened in reverse in Japan where it seems 0% interest rates has kept growth and inflation near 0%. This is now happening in US and Western Europe.
The problem I have with the opposite scenario is the short term shock to real rates. I have trouble understanding that prices can be forced by interest rates to rise because I do not think businesses will be able to service that debt.
You say sectors will not go bust and somebody will be left standing to service the debt and raise prices. Sorry I am not convinced.
What about investing in gold, won't that be a solution to inflation and to get away from the pandemic economical crisis?
@PensionCraft - How does the central banks have all the money availble to flood the economy with money during times of the crisis like the present virus pandemic?
Great video
We are in a 40 year old Treasury bond bull market -- which is deflationary (and remember, the Great Depression was a bond bull market) -- and it will continue unabated until permanent backardation in the gold futures market means that the entire debt tower cannot fetch one gram of gold. But until then, all new money created by the CBs will flow into the party in the bond market, pouring gasoline on the flames of deflation.
Does anyone agree with this?: With housing prices going up instead of down right now and more QE and likely pent up demand for goods in a post Corona recovery, toss is higher reserves of cash during Corona that I can only assume will be spent, and ..well more electric vehicles with higher price tags.. Doesn't that seem like a recipe for higher inflation? Assuming a recovery that includes jobs coming back..? I can only think of a few areas that are likely to see losses in spending like... restaurants... and I'll also toss in entertainment and clothing; it seems like those would stay depressed.
The video is a thorough, evidence-based explanation of economic phenomena. The comments section is a bunch of triggered, one-liner opinions. I can't decide who to believe...
Hi Tim Do, I appreciate you taking the time to comment. Thanks for watching. Ramin
Fewer possessions, fewer headaches. Fear will be replaced by passion pursuits. Inovation and basic income will grow economies from the people up.
So I did the math and Venezuela's velocity of money is currently 0,0377, that doesn't stop the hyperinflation. You usually get hyperinflation when you don't produce anything and print extraordinary amounts of money like the USA is doing now.
how do you think real estate will fare in this crisis?
Can you please explain me one thing: if central banks will now secure loans given by banks to all businesses, what will happen when businesses go bankrupt? Loans will not be paid back, so normally central banks should default too, but it is not possible, so what will happen?
Great channel
Thank you! Ramin
Great work
Thank you Classic Motorcycle Tales. Ramin
Wrong..Eggs meat and general supplies are down ..the cost of groceries has literally almost doubled in less than 30 days..
And the government keeps trying to ease the public telling them there is plenty to go around however we all know this isn’t true which is why everyone keeps hoarding supplies and food and the cost is rising overnight..
If companies all go bust then you have zero supply. So if you have some stuff stocked away you can sell it at a high premium. Companies who produce stuff that go bust cause scarcity in stuff so that stuff becomes far more expensive. Simple logic. Watch it happen Zimbabwe style. Inflation in an environment of scarcity is obviously coming. Bank printing money will just make it happen faster. But it will come after a period of huge scarcity of SMEs all going out of business.