Is Inflation Transitory?

Submitted by XBoxBoy on July 6, 2021 - 10:34am
Inflation falls back to under 2% before end of year.
0% (0 votes)
2-3% inflation in the coming years, nothing to be worried about
14% (3 votes)
3-4% inflation but drops after a year or two
23% (5 votes)
4-5% inflation that lasts longer than the fed thinks.
27% (6 votes)
5-6% inflation and the fed is well behind the curve
27% (6 votes)
6%+ Here come the 70's all over again.
9% (2 votes)
Total votes: 22
Submitted by XBoxBoy on July 6, 2021 - 10:43am.

I've been wondering this question a lot lately, and wonder what others think.

The thing that gets me is that I hear so much about how employers are having a hard time hiring and having to raise wages. Wages are a big part of company costs these days and any boost in wages is not likely to be transitory. (Once you raise someone's pay it's really tough to convince them to take a pay cut.)

In the past I've heard arguments that there have been pretty big structural changes that have driven inflation down. (ie. Globalization being a huge influence on driving down labor costs) So, I wonder if these structural changes are still going to be sufficient to keep inflation low.

At the same time, long term bond yields remain stubbornly low, so there must a be a lot of investors thinking inflation is just not going to be an issue. Or maybe the low bond yields are totally the result of the fed's quantitative easing?

Just wondering what others think and why?

Submitted by an on July 6, 2021 - 11:36am.

I voted for 4-5% but I'm hoping for 6%. Like what you said XBoxBoy, once you give someone a raise, it's almost impossible to take it back without the risk of them leaving. So, unless the entire corporate world decide to give everyone a pay cut, I don't see wage going down.

Submitted by The-Shoveler on July 6, 2021 - 1:11pm.

IMO Wages/Rents etc... are sticky FED is way behind (maybe on purpose).

At this point I hope I am wrong, But IMO a million dollar 401K is not going to last you too long in 5 years.

Submitted by sdrealtor on July 6, 2021 - 2:04pm.

It will in Arkansas. Everything is relative

Submitted by gzz on July 6, 2021 - 2:35pm.

Have a look at the composition of the Fed. Lots of elites and people who represent financial elites.

As long as this is the case, any hint of inflation will be stamped out.

Are there serious signs that the overall price level is higher than the 2016-2019 trendline? Not really. Just anecdotes about perennially volatile commodity prices and comparisons with the unusual 2020 baseline.

I think keeping inflation below a 2% is bad policy, but not one that will be ending anytime soon.

Submitted by Rich Toscano on July 6, 2021 - 3:28pm.

gzz wrote:

Are there serious signs that the overall price level is higher than the 2016-2019 trendline? Not really. Just anecdotes about perennially volatile commodity prices and comparisons with the unusual 2020 baseline.

Yes, there are. Here are the month-to-month changes in core CPI over the past 3 months:

Mar: .62% = 7.4% annualized
Apr: .77% = 9.2% annualized
May: .64% = 7.7% annualized

This is Core CPI, so commodities don't come into it, and these are monthly changes, so there are no base effects from last year.

We've rarely seen changes at this level since the early 1980s, and never in the 2016-19 period you cited. Now, whether this is transitory is a whole other (difficult, imo) question. But for now, there absolutely are signs of higher than normal inflationary pressure.

Submitted by XBoxBoy on July 6, 2021 - 4:09pm.

gzz wrote:
Just anecdotes about perennially volatile commodity prices

Ok, my response is no where near as good as Rich's, but here's an anecdote. I went to industrial metal supply today to buy a piece of aluminum that would have cost me $40 at the most prepandemic. I paid $81 today! Whole smokes, now that's inflation!

Part of this is undoubtedly supply chain. But I can't help but think lots of companies are thinking, "Hmmm... bet I can get away with raising prices, everyone else is."

Submitted by sdrealtor on July 6, 2021 - 5:03pm.

Got to McDonalds for another anecdote and order a basic combo meal. Its almost $10 now with tax

Submitted by gzz on July 6, 2021 - 6:02pm.

Yes, there are. Here are the month-to-month changes in core CPI over the past 3 months:

Mar: .62% = 7.4% annualized
Apr: .77% = 9.2% annualized
May: .64% = 7.7% annualized

Now let's do the same months in 2020:

-0.3 = -3.6% annualized
-0.7 = -8.2% annualized
-0.1 = -1.2 annualized

Where you worried about runaway deflation then? I don't remember anyone at the time with that concern. Rather, there's a common and irrational cognitive bias deep within our society fearing inflation, instilled on us by economic elites who own and dominate the media and demonize the booming and egalitarian 1970s.

At the moment we have catch-up inflation after a deep deflationary recession. That is a good thing.

CPI increase between May 2017 and May 2019: 4.63% over two years.

CPI increase between May 2019 and May 2021: 5.15% over two years.

Given that CPI overstates inflation compared to other measures, doesn't seem to be very high to me.

Submitted by gzz on July 6, 2021 - 6:17pm.

I purchased a desktop computer in both 2021 and 2011.

The 2011 was $1462 all in with tax and ship and had a slow first gen SSD of 120GB, 2GB of ram, and a first gen i7.

The one I purchased this year was $550 all-in and has 16gb of much faster ram, a faster m2 1TB SSD, a CPU I imagine is 2 to 20 times faster depending on the task, and uses much less electricity.

Adjusting for quality, inflation was about -15% a year for 10 years. Even valuing them the same, it was about -67% over ten years.

Submitted by EconProf on July 6, 2021 - 7:52pm.

I'd guess 6% for this calendar year and perhaps 8% next year. Since Rich has documented about an 8% rate, annualized, for March, April, and May, this may prove to be conservative, for several reasons:
The government tracks the price of a "basket of goods" (and services) monthly to describe inflation. I'm guessing that there must be a time lag between the sampling and actual reporting that is giving us understated inflation numbers now. We've all heard about the tripling of lumber prices, and big jumps in copper, oil, silver, etc. These ingredients, or input prices, will eventually be reflected in the prices of final goods.
In addition, rental housing costs make up over 1/4 of the CPI, and rents are poised to jump given the scarcity of rentals--another lagging indicator. Given the Fed's rapid increase in the money supply combined with massive deficit spending, inflation will clobber middle and lower income groups. Landlords not so much.

Submitted by Rich Toscano on July 6, 2021 - 8:22pm.

gzz wrote:

Yes, there are. Here are the month-to-month changes in core CPI over the past 3 months:

Mar: .62% = 7.4% annualized
Apr: .77% = 9.2% annualized
May: .64% = 7.7% annualized

Now let's do the same months in 2020:

-0.3 = -3.6% annualized
-0.7 = -8.2% annualized
-0.1 = -1.2 annualized

Where you worried about runaway deflation then?

Nice strawman. I said nothing about "runaway" inflation. I just cited data to show that your claim ("Are there serious signs that the overall price level is higher than the 2016-2019 trendline? Not really") was wrong.

As for this "Given that CPI overstates inflation compared to other measures, doesn't seem to be very high to me" -- the question wasn't whether inflation seems high to you. It was whether there is non-anecdotal evidence of above 2016-19 trend inflation. And the answer (when comparing core CPI to itself, btw) is yes.

Submitted by Rich Toscano on July 6, 2021 - 8:46pm.

BTW the non-strawman version would have been this:

If you had said in Mar-May 2020 that there is "no sign of inflation BELOW 2016-19 trend," would I have disagreed? And the answer is, yes, very much so.

Submitted by an on July 6, 2021 - 9:17pm.

gzz wrote:
I purchased a desktop computer in both 2021 and 2011.

The 2011 was $1462 all in with tax and ship and had a slow first gen SSD of 120GB, 2GB of ram, and a first gen i7.

The one I purchased this year was $550 all-in and has 16gb of much faster ram, a faster m2 1TB SSD, a CPU I imagine is 2 to 20 times faster depending on the task, and uses much less electricity.

Adjusting for quality, inflation was about -15% a year for 10 years. Even valuing them the same, it was about -67% over ten years.

wonder what the cost of a mainframe was in the early 70s and the cost of a pc was in mid 80s.

Submitted by gzz on July 6, 2021 - 10:57pm.

https://m.youtube.com/watch?v=HdMaBtPfY_Q

Having used extensively when I was a kid a C64, an 80s IBM PC, and an Apple IIe, the C64 was my favorite. The family C64 was used regularly until about 1995 when we got a $2000 75mhz Pentium with Win95 and AOL. Probably 200MB HDD and CD reader but not burner, which would have added another $500.

Submitted by sdrealtor on July 7, 2021 - 9:25am.

In the late 80's I paid $1000 for a 31" Toshiba TV that weighed as much as a house. Now you can buy a bigger better flat LCD TV for not much more than $100. This isnt deflation its tech advancement. My $10 Happy meal was under $2 then. Thats inflation

Submitted by gzz on July 7, 2021 - 11:43am.

SDR, that is literally the definition of deflation: the price of things decline.

There are a lot of reasons it may happen, including progress in technology.

Relatedly: people pointing to commodity prices going up need to explain how the officially inflation stats in the 1980s of ~5% inflation was wrong, because commodity prices were declining.

You never see that happen though, because anecdotes about higher prices are always about impending doom, but not falling prices.

Submitted by an on July 7, 2021 - 1:49pm.

Price increase & decrease all based on supply vs demand (econ 101). As new product gets introduced to the market, demand for older product goes to 0, hence declining prices. You get constant new product in tech hardware. However, you don't get any anywhere else. It's not like there are new kind of milk where demand for older kind of milk goes to 0. The only similar analogy you can give is expired milk cost $0 since no one want it. It'll get discounted over time till it gets to $0.

Submitted by sdrealtor on July 7, 2021 - 2:08pm.

That’s not deflation. It’s an entirely different product and technology. It’s not the same thing. Inflation is best measured across the same item like a commodity or a happy meal

Submitted by gzz on July 7, 2021 - 2:11pm.

"It's only tech" seeing deflation is not true.

Milk, your example, has been generally on a price downtrend. In 2008 milk averaged $3.80 a gallon, in $3.30 in 2020.

Also, "tech" as a catagory would need to include more and more things like cars, solar panels, pet toys, smart light bulbs.

As new product gets introduced to the market, demand for older product goes to 0

Sometimes. On the other hand, a Samsung Galaxy 7 was something like $800 when introduced, $600 a year later, and now off-brand phones with basically the same specs are about $50-100 and still sell to the US poor and developing nations.

Submitted by gzz on July 7, 2021 - 2:23pm.

That’s not deflation.

There's not much point in debating the meaning of a word with someone who has a non-standard definition.

Inflation is best measured across the same item like a commodity or a happy meal

So measure inflation by looking at goods whose price tends to rise, while ignoring those where it tends to fall?

Are the official stats wrong from the 1980s, and instead massive deflation in the 1980s during the long commodity bust?

Submitted by sdrealtor on July 7, 2021 - 3:34pm.

Another strawman. You are getting good at that. You need to meausre inflation across the same thing. The rent for a 1 BR apt, an apple, a happy meal, a gallon of gas. A 30" crt tv is not the same thing as an lcd flat panel tv. It has the same general functionality but it is not the same. Its not unlike comparing a battery operated sex toy to a hooker. Same output but its just not the same thing

Submitted by Coronita on July 7, 2021 - 3:55pm.

gzz wrote:
I purchased a desktop computer in both 2021 and 2011.

The 2011 was $1462 all in with tax and ship and had a slow first gen SSD of 120GB, 2GB of ram, and a first gen i7.

The one I purchased this year was $550 all-in and has 16gb of much faster ram, a faster m2 1TB SSD, a CPU I imagine is 2 to 20 times faster depending on the task, and uses much less electricity.

Adjusting for quality, inflation was about -15% a year for 10 years. Even valuing them the same, it was about -67% over ten years.

The price of tech gear, computers, tv, etc are a bad example of proving/disproving inflation or deflation.

Computers and tvs in particular will always get faster and cheaper over time, and that's independent of how everything else is doing. It's not a great marker of whether we have inflation or not, and it's more of an exception than the rule, because the cost of a brand new tech of costs significantly more due to R&D costs and costs of making that new tech, but over time, cost of manufacturing and making it more readily available gets cheaper..Partly also as more of the manufacturing is moved overseas to cheaper cost areas, which keeps prices low...

That's like saying back in the 80ies one pays $1000 for a 300 baud modem but in 2021 you're paying $80 for a cable modem that's several X faster than the modem...Technology advances, cheaper manufacturing costs,etc...

Cars ... not sure if it's a good indicator of inflation right now. Car prices are moving up, but I think that has more to do with a parts shortage that's putting a supply constraint on new cars, and that's spilling over to the used car markets, which is why a lot of used cars bought in 2017-19 can now sell for about the same price now...Maybe more of supply constraint? Also, it's hard to compare a likewise car model this year to something similar that was sold 20-30 years ago, because car manufacturers are packing more and more bells and whistles to mark up the car prices.
For example, a 3 series BMW would be in obtainble in the low 30ies but the entry 3 series reach close to mid-40ies to low 50ies now, because of all the bloatware tech they are putting into the cars. And they do this intentionally because most people lease these days...

What I thought was interesting was seeing the prices of simple non-tech things, like plumbing fixtures. I just had 3 moen faucets repaired, and the replacement faucet cartridge were almost $50/each. Last year, they were around $25...

And other things like price of food, price of eating out, seems to have gone up quite a bit.

Submitted by sdrealtor on July 7, 2021 - 3:56pm.

Exactly. Comparing the same thing over time is where you see true measures of inflation. Is gzz's billing rate the same today as it was 5 years ago? You're getting the same thing

Submitted by deadzone on July 7, 2021 - 5:09pm.

Inflation is insane right now. Biggest problem is housing and rent on national level. Was on vacation in Montana recently. Talked to a girl working in a bike shop in Helena. She moved there from Bay Area during beginning of Pandemic. Said her rent has doubled in the past year. Was hearing similar stories from many people over there.

Problem is, although wages are also going up in many places like this, there is no way salaries are keeping pace with these housing costs. Something has to give.

Thank you Federal Reserve!

Submitted by Coronita on July 7, 2021 - 6:08pm.

deadzone wrote:
Inflation is insane right now. Biggest problem is housing and rent on national level. Was on vacation in Montana recently. Talked to a girl working in a bike shop in Helena. She moved there from Bay Area during beginning of Pandemic. Said her rent has doubled in the past year. Was hearing similar stories from many people over there.

Problem is, although wages are also going up in many places like this, there is no way salaries are keeping pace with these housing costs. Something has to give.

Thank you Federal Reserve!

Wages never keep up with cost of living and a lot of assets. This should be one of the lessons everyone learns sooner versus later. That's always how it's been and always how it will be.

If one stays working at the same place forever, you get maybe a 2-3% raise per year. While the rest of the world's cost is moving much faster.

So one either fix one's living/operating expenses as soon as it's financially possible ...or the longer one whats, the great the chances one runs into not being able to keep up, assuming that net income coming in from a job does not really materially change.

https://www.marketwatch.com/story/more-p...


This 29-year-old just boosted her salary by $22,000 — here’s how she did it

Jordan Bradford graduated college in 2012 with a degree in psychology. After deciding she didn’t want to pursue further education in the field, she got hired at an association-management firm in her home state of Georgia.

“I had this job for five years, but I wanted something new and believed I was being underpaid,” Bradford told MarketWatch.

She looked to Washington, DC, for new opportunities and found a job as a manager at another association-management firm this past November. Soon after taking on the new role in DC, she realized she was being underpaid there as well. She began actively looking for a new job in April and officially switched companies three weeks ago.

“I now have the same role and same title, but I’m making $22,000 more,” Bradford said. “My original company in D.C. was surprised that I was leaving, but they understood my reasoning.”

This is actually a pretty decent article... The one part that hits home and describes exactly what many of us already knew several years (decades) ago....


Moving around can boost your salary
Moving jobs quickly can be beneficial to your salary, and that’s typically the main reason people do it. Consistently remaining employed at a company for longer than two years will decrease your lifetime earnings by 50%, according to CPA and tax expert Cameron Keng.

While employees who stick at the same company can generally expect a 3% annual raise, changing jobs will generally get you a 10% to 20% increase in your salary, Keng estimates.

“The biggest benefit you often get from changing jobs is a pay increase you wouldn’t have gotten otherwise,” Lee said.

“It’s easier to get your compensation in line with market levels if you move jobs often,” Sutton said. “It’s essentially the only way to do it.

Submitted by Coronita on July 7, 2021 - 6:20pm.

also, using the montana relo person...thats why im not really sure people who move to a lower cost area are really better off in the long run id they still count on a job to pay for living expenses. yes the cost of rent is lower relative to CA but so is their wages and opportunities maybe...

Submitted by deadzone on July 7, 2021 - 6:22pm.

In the long run most skilled professional workers are compensated based on their experience and skill set. Sure you can job skip around to get large bump in your salary and it can put you ahead of your peers. But at a certain point, you risk promoting yourself out of a job. Your theory only holds water during long periods of economic growth in certain industries perhaps. But if there is a recession, such as Defense in the 90s or .Com in the 2000s, guess who is going to get laid off first? The mid-manager or Senior Engineer making 200K a year, that's who. And now when they start looking for another job and they are telling the recruiter they make 200K, good luck with that.

Submitted by deadzone on July 7, 2021 - 6:27pm.

Coronita wrote:
also, using the montana relo person...thats why im not really sure people who move to a lower cost area are really better off in the long run id they still count on a job to pay for living expenses. yes the cost of rent is lower relative to CA but so is their wages and opportunities maybe...

Well, in the case of low wage work like in a bike shop, they may make as much in Mt as in Santa Cruz so even with rent doubling it would still be far lower cost of living.

But keep in mind people aren't necessarily relocating out of Ca just for financial reasons. For many I think it is lifestyle reasons.

Submitted by Coronita on July 7, 2021 - 7:48pm.

.

Submitted by an on July 7, 2021 - 8:59pm.

In California, you don't have to tell them what you made. So the company can just offer you what the market rate is when there's a recession.

Submitted by deadzone on July 7, 2021 - 9:55pm.

an wrote:
In California, you don't have to tell them what you made. So the company can just offer you what the market rate is when there's a recession.

Exactly my point. So if you were overpaid previously you will have to be willing to take a major pay cut at your next job.

Submitted by an on July 7, 2021 - 11:01pm.

deadzone wrote:
an wrote:
In California, you don't have to tell them what you made. So the company can just offer you what the market rate is when there's a recession.

Exactly my point. So if you were overpaid previously you will have to be willing to take a major pay cut at your next job.


You'd still make more than if you never moved.

Submitted by sdrealtor on July 7, 2021 - 11:18pm.

deadzone wrote:
In the long run most skilled professional workers are compensated based on their experience and skill set. Sure you can job skip around to get large bump in your salary and it can put you ahead of your peers. But at a certain point, you risk promoting yourself out of a job. Your theory only holds water during long periods of economic growth in certain industries perhaps. But if there is a recession, such as Defense in the 90s or .Com in the 2000s, guess who is going to get laid off first? The mid-manager or Senior Engineer making 200K a year, that's who. And now when they start looking for another job and they are telling the recruiter they make 200K, good luck with that.

My best friend was that guy. He is a commercial real estate finance guy. About the most susceptible to downturns as can be. Youre view of the world had him getting laid off first. Here is what actually happened.

He had spent the last 30 years job hopping and was not attached to a single employer or job. As soon as things started turning south his experience job hopping helped him see what was coming. He went to his employer and told them to lay him off and hire him back as a consultant. He had the guts and confidence to do that. One by one everyone else with his skills got laid off. They kept him on because he was flexible and could take on as much or as litle as they needed him. He picked up a few side projects along the way through his network developed from his 30 years of job hopping. When things got tougher he lowered his billing rate but he never went a week without some work.

Then things started coming back and his rate went back up even higher. Then they hired people back but with his billing rate he was making a ton more. He was making as much as the top level guys. Last year they hired him back at a salary almost double plus bonus and full benefits.

He never got attached or too comfortable with any one job. He bought a home when the numbers made sense and didnt worry about prices dropping more which they did in Newport Beach.

He made a ton more than he would have had he chosen the safe comfortable long term skilled professional route you just espoused. He played golf at least 3 times a week through it all and still does. He traveled extensively, lived a great life and still does. He didnt spend his life talking himself out of opportunties. He finds them, does the math and moves forward when they make sense. Without catching any bottom or top, he has gotten far ahead of people who devoted the last 30 years to a single company. There isnt one path in life

Submitted by Coronita on July 8, 2021 - 8:27am.

deadzone wrote:
In the long run most skilled professional workers are compensated based on their experience and skill set. Sure you can job skip around to get large bump in your salary and it can put you ahead of your peers. But at a certain point, you risk promoting yourself out of a job. Your theory only holds water during long periods of economic growth in certain industries perhaps. But if there is a recession, such as Defense in the 90s or .Com in the 2000s, guess who is going to get laid off first? The mid-manager or Senior Engineer making 200K a year, that's who. And now when they start looking for another job and they are telling the recruiter they make 200K, good luck with that.

I didn't originally want to comment on this because this thread was about inflation. But you know you are totally wrong about this in many ways.

1. Many people who move for higher pay don't make a lateral move. They usually move for higher pay AND a higher position. And provided you are perceived competent in that higher position, if a layoff happens, it's not necessarily that you will be laid off. For instance, if you moved into a leadership position, chances are (again if you are perceived competent), you'll probably be the one making the decisions on who to layoff.

2.Also, layoffs aren't strictly based on cost and how much someone makes. Layoffs often times are done to cull perceived under-performers or negative performers..without having to go through the red tape of firing people with cause by putting them on a performance plan and PIPing them out. There are two kinds of people that are undesirable on a team
a. Negatively productive performers. These are people who by their presence makes the team less efficient and worse off by being there.
b. Under-performers. Those are people that while not be a team detractor, aren't as effective as someone else could be if you replaced them.

You generally what to get rid of (a) people right away, or get them off your team and have someone else deal with them where as (b) people you aren't in as much as a hurry and you can keep them around until the next round of layoffs in the future (they might have some historical knowledge that is useful, so you want to keep them around long enough so they can transfer their knowledge to someone else).

While some managers and company insist on using a performance improvement plan as the primary way to get rid of a perceived underperformer, many managers and companies avoid it because especially in CA, it takes too long, and the longer someone you want out hangs around, the greater the chances are that person will bring down work morale for everyone else while they have to go through the 1-2 month PIP process. Layoffs on the other hand dont drag this out. they are silent, and planned, and executed pretty quickly. People don't get to linger around to drag down morale, and generally you let the person leave on better terms than if you PIP them out. It's more humane and less likely to receive blowback, because it's not perceived as personal... You eliminate the position/responsibility because for example the technology/product direction has changed, and since those underperformers didnt try to pick up new skills and new responsibilities, they are no longer needed and can get RIFed in an annual bottom performing layoff. You give them a nice departing package as a condition of not coming back around a sue the company, and since you eliminated the project and job responsibilities with that project, you are covered by all the "at-will" employment clauses in CA. lots of tech companies in the Bay Area do this to weed out the bottom performing 20%...Other companies have no problem and directly firing them... But the end goal is the same...

https://www.crn.com/news/channel-program...
https://www.inc.com/suzanne-lucas/tesla-...
https://www.businessinsider.in/finance/n...
https://en.wikipedia.org/wiki/Vitality_c...

Obviously, i oversimplified how this works in practice, as there are many rules you have to follow or youll get in trouble, for instance, you can't have a job opening for the exact same role/position while you are also eliminating that position/role...so often times companies promote someone they want to get rid of into a role/title they don't plan on keeping...It can be viewed as a "move up" and feels good, but the real purpose isn't a promotion, but a way to isolate and eliminate a job at a company. Its an alternative way to get rid of people you dont want on the team: "promote out"

(fwiw There are other ways you can get rid of people you dont want, and that involves reassigning them to "death march" projects with an impossible deadline and impossible to complete that is totally boring and tedious..with the intention of making their life so miserable that they quit on their own. Imho thats cruel to do, and if the person really is a "lifer" that doesnt give a rats ass and is there just collecting a paycheck, they might not care, and you are still stuck with them. So it might not work, and which point you have go back to the original 2 options of either PIPing them out or lay them off by eliminating the death march project. I would never do this, but many people do. This is all covered in that book I suggested people read awhile ago:

21 Dirty Tricks at Work: How to Beat the Game of Office Politics so you learn to spot when these sort of games are being played, especially if you work at a big bureaucratic US company that tend to all be the same in the games that are played, despite what leadership tells you how much they care about you (they dont)...you dont have play win... you learn so avoid getting played.
https://www.amazon.com/dp/1841126578/ref... )

This book is also good at explaining at how managers are so good at selling workers to work on a "death march" project and get people really excited about a 3% annual raise for going "above and beyond" when in reality someone that is average performing gets 2%... It's kinda of a joke, because an effective manager can sell this sort of bullshit to people when the bottomline is that 1% difference for being a star performer, after taxes, translates into a few extra cups of starbucks coffee, where as the 2% performer probably is better off using his spare time doing a "side hustle" as these millenials call and, do be financially better off, not to mention be better healthwise.

It happened awhile ago when i was in a pure technical and a realatively new principal engineer in the group. Although I had not been around long enough, my VP had a short list of engineers who he wanted out. They kept all the principal engineers and leads who were the highest paid, and some of them were pretty new. The axe fell on the several mid and senior engineers who were perceived as old timers that while not paid as well...people had the perception weren't really that productive and/or difficult to work with. That's how layoffs typically happen. Almost all managers have a list of employees ranked from top to bottom in their mind and IF there ever was a layoff, they would cull from the list starting with the bottom performers and keep culling until a target cost savings is met.its rare that you would simply get rid of someone because they earned the most. After all, there probably was a reason why you authorized to pay them more when you hired them. Some of my new engineers are a lot more dedicated than some of my old engineers I inherited that i would consider slightly as dead weight. Even if they cost less than my new engineeers, they still cost money, if there are layoffs in the future, theyd be the first to go. And there's also something to be said if you're are building a team, you want to staff it with people you pick, not inherit people from the previous team. Often times, those people that stuck around have a lot of baggage and negativity you won't find in new people and while they might have a slight advantage of having the historical know-how of how things work, their knowledge is only good as far as how willing they are willing to work without being a pain in the ass... Too much baggage and PITA factor, and pretty soon the new guy that costs more willing to do more will catch up, and do a better overall job then a deadweight that only shows up to collect a paycheck.

3. Layoffs also happen a lot that are age/time based, even if it's an illegal practice. It happens a lot particularly in companies that offer a pension or large stock grant, when an evil management tries to layoff people that have been there a long time...They do this because they don't want to pay the old timer's pension or stock benefits for those years of service...or often the perception is that they can find someone that is in their late 20ies early 30ies who would do more work more efficiently... So it's not unheard of that at these evil companies, out of nowhere some of thes old timers will suddently get PIP'd out , because usually those evil companies use the PIP process to justify firing with cause (hence no unemployment benefits and pension, etc)... So evil management will often just make impossible goals for an individual they want to get rid of just to make sure they fail and have cause to get fired. I've seen this happen so many times to people, particular in the defense industry and the public sectors where jobs are not union protected. It's the only way to get rid of people that would otherwise be a "lifer" at that company. I would never do something like that and if I was asked to do something like that, I think I would quit my job because I wouldn't want to be part of a company that rolls that way, but that's just that's me. Other managers/directors would have no problem throwing someone else under the bus for no reason if it means they get a larger bonus.I saw it happen a few times at Intuit too. A few folks that were otherwise great performers were PIPed out and they came back and sued intuit. I think some of them settled outside of court. One in particular was a really talented woman, and when I heard what they did to her, I was like "what the hell were you thinking?" No matter, because I think the settlement made her whole, and she's now a director at another company, way better position than she had before.

4. Lastly, often times, moving around, getting those 20+% bumps helps you amass your income much earlier during your career. That larger income upfront potentially enables people to buy/obtain things to fix their living costs earlier. It often enables people, for instance. to purchase a house earlier and/or pay down a house earlier and/or have sufficient money to invest in something that generates passive income sooner. And the sooner that happens, the less likely those individuals will need continue to count on their wage income all the way to 60+. (if they want to continue working, that's a different story).

I think that's really ultimate end goal for all what we do, whether we work at a job or have a "side hustle" as some of these millenials call it.

And it's important to keep that in mind because especially in tech, I don't think you see many pure engineers still continue to do what they do all the way until they are 60+.....

Submitted by The-Shoveler on July 8, 2021 - 2:47pm.

I was just looking at a stat (percentage of US population worth over 1 Million), what surprised me is over 10% of the US population has over 1M socked away (and that is not including the value of your primary).
(if everyone's a Millionaire no one is)

So if you just socked away your millionth Dollar, get ready, you're basically just average (OK maybe a little above).

Submitted by The-Shoveler on July 8, 2021 - 3:04pm.

If inflation is running at 5% and you're lending long term money at 2.5%.

Hmmm this could get interesting.

Submitted by XBoxBoy on July 8, 2021 - 4:35pm.

The-Shoveler wrote:
If inflation is running at 5% and you're lending long term money at 2.5%.

Hmmm this could get interesting.

In a sense this is already happening. 10yr treasuries closed at 1.29 today but were at 1.25 overnight last night. Of course that's investors lending to the government. If it gets turned around so that investors can borrow at 1.25 with inflation at 5% I would expect the price of assets (think housing and stocks) to continue their frenzied path up.

I'm not sure we can claim inflation is running at 5%, but it seems clear to me that it is running at more than 1.25% so return to investors on treasuries seems to me to be a losing investment. But, what do I know. There must be enough investors interested in the 1.25% return or the bonds wouldn't be being bought and rates would be rising instead of falling.

Submitted by deadzone on July 8, 2021 - 9:01pm.

XBoxBoy wrote:
The-Shoveler wrote:
If inflation is running at 5% and you're lending long term money at 2.5%.

Hmmm this could get interesting.

In a sense this is already happening. 10yr treasuries closed at 1.29 today but were at 1.25 overnight last night. Of course that's investors lending to the government. If it gets turned around so that investors can borrow at 1.25 with inflation at 5% I would expect the price of assets (think housing and stocks) to continue their frenzied path up.

I'm not sure we can claim inflation is running at 5%, but it seems clear to me that it is running at more than 1.25% so return to investors on treasuries seems to me to be a losing investment. But, what do I know. There must be enough investors interested in the 1.25% return or the bonds wouldn't be being bought and rates would be rising instead of falling.

Investors aren't buying 10yr at 1.25%. The Fed is doing most of the buying.

Submitted by brg654 on July 8, 2021 - 10:40pm.

an wrote:
once you give someone a raise, it's almost impossible to take it back without the risk of them leaving

if everyone gets a 5% raise, you'll have 5% inflation. if everyone gets a 5% raise this year, and a 2% raise next year, inflation is back down to 2%. that's the very definition of transitory inflation.

you don't need wages to fall for it to be transitory. the underlying factors driving lower inflation - an aging population and rising savings rates - hasn't changed during the covid crisis. in fact, it's made it worse. workers saw how quickly jobs can disappear, and the saving rate has gone up, even after adjusting for the stimulus. meanwhile, on the demographic front, births just fell to their lowest levels ever, deaths have increased (hopefully just a one-year event due to covid), and immigration stagnated as a result of the pandemic and government policy.

the move in the 10 year bond yield from 1.7 to 1.3 has been driven by a realization that the fed is right and inflation is transitory, along with slower growth prospects as we move back to trend 2-ish% real gdp growth in 2022 and beyond.

Submitted by brg654 on July 8, 2021 - 10:34pm.

Coronita wrote:
I didn't originally want to comment on this because this thread was about inflation. But you know you are totally wrong about this in many ways.

as a mid-level manager in a large company, i can say your entire comment is spot-on.

Submitted by an on July 8, 2021 - 10:58pm.

brg654 wrote:
if everyone gets a 5% raise, you'll have 5% inflation. if everyone gets a 5% raise this year, and a 2% raise next year, inflation is back down to 2%. that's the very definition of transitory inflation.

I understand that if it goes back to 2%, then that's transitory. However, I don't see that happening. We'll revisit in a year to see if it's transitory or not.

Submitted by XBoxBoy on July 9, 2021 - 8:32am.

deadzone wrote:
Investors aren't buying 10yr at 1.25%. The Fed is doing most of the buying.

While I know the fed is buying a lot of treasuries, are they buying more than half? (Which would be my definition of "most") Do you have any data to back up that claim?

Submitted by Coronita on July 9, 2021 - 10:04am.

XBoxBoy wrote:
deadzone wrote:
Investors aren't buying 10yr at 1.25%. The Fed is doing most of the buying.

While I know the fed is buying a lot of treasuries, are they buying more than half? (Which would be my definition of "most") Do you have any data to back up that claim?

I will never understand treasuries and bonds. I just haven't been able to get them to work in my portfolio. I buy a little, not sure why, because they usually make up the negative portion of my long term account.

People were predicting it's a great time to buy bonds and treasuries back in march. not really that great.
https://www.cnbc.com/2021/03/22/now-is-t...

Submitted by deadzone on July 9, 2021 - 12:11pm.

XBoxBoy wrote:
deadzone wrote:
Investors aren't buying 10yr at 1.25%. The Fed is doing most of the buying.

While I know the fed is buying a lot of treasuries, are they buying more than half? (Which would be my definition of "most") Do you have any data to back up that claim?

Excellent questions.

So for the period since the pandemic started, which is what we are talking about, Fed has purchased approx 2.1 Trillion in treasuries as of April 29th (certainly much higher now).

https://www.pgpf.org/blog/2021/04/the-fe...

Meanwhile total US Debt increased approx 4.9 trillion over that period.

https://fred.stlouisfed.org/series/GFDEBTN

So not quite 50% but damn close and certainly enough to totally control the interest rates. This is a totally manipulated market. What do you think interest rates would be in a free market with out the Fed's quantitative easing?

Submitted by gzz on July 9, 2021 - 12:41pm.

I disagree on the potency of the Fed's bond purchases on interest rates.

Absent those purchases, the economy would be more depressed, in turn reducing private sector demand for funds, in turn shifting demand to government bonds because of the lack of private offerings. So same rate, but in a different recessionary equilibrium.

Further, non-Fed buyers still purchased $1 trillion+ of treasuries. They would not have done so at such a low rate if they expected rates to spike up because of Fed cession of purchases or inflation.

Submitted by XBoxBoy on July 9, 2021 - 12:42pm.

deadzone wrote:
What do you think interest rates would be in a free market with out the Fed's quantitative easing?

Really no idea, but certainly wouldn't be as low as they are. But many other things would be very different too. I doubt if the economy would be growing like it is for one.

But don't get me wrong, I don't disagree that the fed has been very aggressive in holding down rates. While that has caused some bad things, I'm not convinced that on whole it has been worse then if they did nothing to interfere.

Submitted by deadzone on July 9, 2021 - 12:50pm.

gzz wrote:
I disagree on the potency of the Fed's bond purchases on interest rates.

Absent those purchases, the economy would be more depressed, in turn reducing private sector demand for funds, in turn shifting demand to government bonds because of the lack of private offerings. So same rate, but in a different recessionary equilibrium.

Further, non-Fed buyers still purchased $1 trillion+ of treasuries. They would not have done so at such a low rate if they expected rates to spike up because of Fed cession of purchases or inflation.

If it weren't for the Fed, the US Government couldn't be spending money like a drunken sailor.

The net effect of this policy is to enrich the upper 10% and particularly upper 1%. Whether this is a good policy or not depends on your position.

In other words, if you have a lot of money in stock market or RE, then you love this policy. Everyone else is pretty much being F'd in the rear.

Submitted by gzz on July 9, 2021 - 12:49pm.

I just haven't been able to get them to work in my portfolio. I buy a little, not sure why, because they usually make up the negative portion of my long term account.

People were predicting it's a great time to buy bonds and treasuries back in march. not really that great.

I have an unrealized gain of 40% in the international junk bond fund EHI from 1/2016 purchase, and it paid out another 40% or so in income, though the income was taxed at full ordinary income rate, so my pretax gain of 80% is not as good as a stock going up that much with lower tax rate that can be deferred forever.

I purchased taxable muni fund GBAB in March 2020 which is up 26%, and paid out about 10% in income.

In general, however, people with large fix rate debt secured by RE should not be buying longer bonds, since they are correlated assets. I couldn't help myself, because the risk/reward during my entry seemed too good to pass up. I am steadily selling them off as they go up and the correlation with my RE becomes a bigger issue as the RE goes up and dominates my portfolio.

Submitted by gzz on July 9, 2021 - 1:00pm.

deadzone wrote:

If it weren't for the Fed, the US Government couldn't be spending money like a drunken sailor.

Sure, in turn depressing the economy and causing the market interest to decline. That's my point. The Fed purchases stimulated the economy to a higher level but at the same basic interest rate.

deadzone wrote:
The net effect of this policy is to enrich the upper 10% and particularly upper 1%. Whether this is a good policy or not depends on your position.

In other words, if you have a lot of money in stock market or RE, then you love this policy. Everyone else is pretty much being F'd in the rear.

We'll have full stats later, but the stimmy checks and extended and enlarged unemployment caused the fastest and largest decline in both total and childhood poverty in our records. That's what happens when there's a firehose of free money that includes the poor. Here's some details on this topic:

https://www.taxpolicycenter.org/publicat...

PPP, on the other hand, increased wealth inequality.

Whatever the net effect, it will primarily be the result of tax and spending decisions of Congress, not the monetary policy of the Fed. The President's proposed tax plan will reduce inequality and be borne by the 1%.