"Unless and until the DC swamp decides to tackle their spending and debt habits"
I'm pretty sure that won't happen until the whole mess blows up in their faces, something that will likely happen in the foreseeable future. We're in the coffin corner now (aviation analogy) and it's been entirely predicable for a decade and a half that this is where we'd end up if we kept climbing.
As we are seeing in China (which has had a far more profligate monetary and fiscal policy than the US), once the coffin corner is reached, disaster quickly follows.
The United States does not have the burden of an extremely overleveraged real estate sector with a perversely ginormous stock of unfinished properties, but there are still contagion risks from commercial real estate to the banking sector (although here also China has far greater risk and exposure).
The catch 22 is that what government must do to prop up banks and real estate companies is the very thing that will destabilize the economy and at least in the US risk a return to hyperinflation. Do something and the economy blows up. Do nothing and the economy collapses.
China has very likely passed the point of no return where there are ways to avoid calamity. The United States might not be there yet, but we are getting frighteningly close. Once we reach that point there will be no stopping the apocalypse.
I have to take issue with your use of the phrase "a return to hyperinflation". Hyperinflation something we've never had in the US since we've been an actual country. I don't know exactly what peak inflation was during the War of 1812 or the Civil War, but in the last 100 years or so, it's never been higher than the teens on an annual basis, and that's far from "hyper".
That said, "Do something and the economy blows up. Do nothing and the economy collapses" is exactly where I think we'll be in short order. My guess is they will "do something", but it won't be very effective and we might end up getting substantial inflation while the economy collapses.
Deflationary depression: Economic activity in real terms is slow because people don't have much money.
Inflationary depression: People have plenty of money, but economic activity in real terms is slow because the money isn't worth much.
"hyper" ultimately is in the eye of the consumer. Certainly when inflation peaked at 9.1%, there was a substantial portion of the consuming public which viewed that level as "hyper". Additionally, if one accepts John William's recalculations of "actual" consumer price inflation as depicted at ShadowStats, what we have had would actually qualify as "hyperinflation" even by conservative assessments.
Additionally, the CPI has risen over 20% since the start of 2020.
I believe the most commonly accepted definition of "hyperinflation" is a monthly inflation rate over 50%. Personally, I could go with an annual rate of 100% or more.
Where I come down on the subject is a rhetorical "how bad is 'bad'?"
Actual inflation--which is to say price alterations not attributable to alterations in underlying supply and demand--is by definition an economic toxin. Actual inflation is by definition a distortion of prices and therefore relative values of goods and services. Actual inflation is, in any amount, "bad".
9% inflation might not seem all that "bad" in absolute terms, but that rate of year on year inflation, reached in June of 2022, is a 357% increase in year on year inflation from where it was in January of 2020.
It is worth mentioning that inflation itself is a rate of change--it's the first derivative of the price index. When the rate of change increased fourfold in the space of two and a half years, and nearly sevenfold in the space of 18 months, that is a pretty dramatic acceleration of the inflation rate regardless of the absolute inflation measure itself.
For comparison, consider that the increases in the Bank Prime Rate from January of 2022 to August of 2023 -- 20 months -- amounted to 260% of the January 2022 Prime Rate itself. Which is to say that borrowing costs more than doubled in that time.
The interest rate itself rose from 3.25% to 8.5% -- arguably not a severe increase overall, but what that magnitude of interest rate increase did was double borrowing costs and then some.
The 10 year treasury yield rose by 317% between January 2022 and October 2023.
That's a tripling of borrowing costs, even though the 10 year yield maxes out just below 5%
None of this is to say that "hyperinflation is X" or "hyperinflation is Y". Rather, it is to say that when we assess the impact of inflation, we should remember to assess the impact of the rate of change in inflation as well.
“Far from controlling consumer price inflation, the Fed is in the unenviable position of being controlled by consumer price inflation. The price pressures from energy pricing have existed with or without the Fed’s rate hikes, and they are driven by events wholly outside the Fed’s ambit, in particular the ongoing wars in Ukraine and the Middle East.
The result? Structurally higher inflation even as the federal funds rate remains high.”
That says it all. But, the Biden administration will do whatever they must in order to win the Election, including manipulating energy prices (via tax cuts, draining the Strategic Energy Reserve, ending the Middle East conflict -whatever). They know that a few days before the Election everyone will be asking themselves, “Am I better off from Biden’s reign, or do I want a change?” The answer better be - at any cost - “yeah, I’m good with Biden”.
Because I want to get rid of Biden’s administration, my preferred trajectory for the economy is for inflation to continue to rise for 7.5 months, so that everyone is ticked off at their polling places. After the Election, I’m hoping that deflationary contagion from China, or possibly new policies, will kick in enough to reverse inflation. Peter, you have studied all of the ‘good little metrics’ (giggle) for years, and have a wisdom now about lag times, lead times, likelihood of stable rates, etc. Juggling all the factors and extrapolating at the rates and prevalences you’ve historically seen, can you give us a ‘likelihood’ of my preferred trajectory occurring? Maybe 50% chance? Or are the pertinent factors, and the future situation in 7.5 months, just too unpredictable to even venture a guess?
"Unless and until the DC swamp decides to tackle their spending and debt habits"
I'm pretty sure that won't happen until the whole mess blows up in their faces, something that will likely happen in the foreseeable future. We're in the coffin corner now (aviation analogy) and it's been entirely predicable for a decade and a half that this is where we'd end up if we kept climbing.
As we are seeing in China (which has had a far more profligate monetary and fiscal policy than the US), once the coffin corner is reached, disaster quickly follows.
The United States does not have the burden of an extremely overleveraged real estate sector with a perversely ginormous stock of unfinished properties, but there are still contagion risks from commercial real estate to the banking sector (although here also China has far greater risk and exposure).
The catch 22 is that what government must do to prop up banks and real estate companies is the very thing that will destabilize the economy and at least in the US risk a return to hyperinflation. Do something and the economy blows up. Do nothing and the economy collapses.
China has very likely passed the point of no return where there are ways to avoid calamity. The United States might not be there yet, but we are getting frighteningly close. Once we reach that point there will be no stopping the apocalypse.
I have to take issue with your use of the phrase "a return to hyperinflation". Hyperinflation something we've never had in the US since we've been an actual country. I don't know exactly what peak inflation was during the War of 1812 or the Civil War, but in the last 100 years or so, it's never been higher than the teens on an annual basis, and that's far from "hyper".
That said, "Do something and the economy blows up. Do nothing and the economy collapses" is exactly where I think we'll be in short order. My guess is they will "do something", but it won't be very effective and we might end up getting substantial inflation while the economy collapses.
Deflationary depression: Economic activity in real terms is slow because people don't have much money.
Inflationary depression: People have plenty of money, but economic activity in real terms is slow because the money isn't worth much.
"hyper" ultimately is in the eye of the consumer. Certainly when inflation peaked at 9.1%, there was a substantial portion of the consuming public which viewed that level as "hyper". Additionally, if one accepts John William's recalculations of "actual" consumer price inflation as depicted at ShadowStats, what we have had would actually qualify as "hyperinflation" even by conservative assessments.
Additionally, the CPI has risen over 20% since the start of 2020.
https://fred.stlouisfed.org/graph/?g=1ifMr
From 2016 through 2019 the CPI rose 8.8%-less than half of what it has done in the Post-COVID era.
https://fred.stlouisfed.org/graph/?g=1ifMy
From 2012 through December 2015, the CPI rose 4.4%
https://fred.stlouisfed.org/graph/?g=1ifMM
When does inflation become "hyperinflation"
I believe the most commonly accepted definition of "hyperinflation" is a monthly inflation rate over 50%. Personally, I could go with an annual rate of 100% or more.
Where I come down on the subject is a rhetorical "how bad is 'bad'?"
Actual inflation--which is to say price alterations not attributable to alterations in underlying supply and demand--is by definition an economic toxin. Actual inflation is by definition a distortion of prices and therefore relative values of goods and services. Actual inflation is, in any amount, "bad".
9% inflation might not seem all that "bad" in absolute terms, but that rate of year on year inflation, reached in June of 2022, is a 357% increase in year on year inflation from where it was in January of 2020.
https://fred.stlouisfed.org/graph/?g=1igOz
It's a 644% increase from the year on year inflation rate in January of 2021.
https://fred.stlouisfed.org/graph/?g=1igOV
It is worth mentioning that inflation itself is a rate of change--it's the first derivative of the price index. When the rate of change increased fourfold in the space of two and a half years, and nearly sevenfold in the space of 18 months, that is a pretty dramatic acceleration of the inflation rate regardless of the absolute inflation measure itself.
For comparison, consider that the increases in the Bank Prime Rate from January of 2022 to August of 2023 -- 20 months -- amounted to 260% of the January 2022 Prime Rate itself. Which is to say that borrowing costs more than doubled in that time.
https://fred.stlouisfed.org/graph/?g=1igPG
The interest rate itself rose from 3.25% to 8.5% -- arguably not a severe increase overall, but what that magnitude of interest rate increase did was double borrowing costs and then some.
The 10 year treasury yield rose by 317% between January 2022 and October 2023.
https://fred.stlouisfed.org/graph/?g=1igPw
That's a tripling of borrowing costs, even though the 10 year yield maxes out just below 5%
None of this is to say that "hyperinflation is X" or "hyperinflation is Y". Rather, it is to say that when we assess the impact of inflation, we should remember to assess the impact of the rate of change in inflation as well.
“Far from controlling consumer price inflation, the Fed is in the unenviable position of being controlled by consumer price inflation. The price pressures from energy pricing have existed with or without the Fed’s rate hikes, and they are driven by events wholly outside the Fed’s ambit, in particular the ongoing wars in Ukraine and the Middle East.
The result? Structurally higher inflation even as the federal funds rate remains high.”
That says it all. But, the Biden administration will do whatever they must in order to win the Election, including manipulating energy prices (via tax cuts, draining the Strategic Energy Reserve, ending the Middle East conflict -whatever). They know that a few days before the Election everyone will be asking themselves, “Am I better off from Biden’s reign, or do I want a change?” The answer better be - at any cost - “yeah, I’m good with Biden”.
Because I want to get rid of Biden’s administration, my preferred trajectory for the economy is for inflation to continue to rise for 7.5 months, so that everyone is ticked off at their polling places. After the Election, I’m hoping that deflationary contagion from China, or possibly new policies, will kick in enough to reverse inflation. Peter, you have studied all of the ‘good little metrics’ (giggle) for years, and have a wisdom now about lag times, lead times, likelihood of stable rates, etc. Juggling all the factors and extrapolating at the rates and prevalences you’ve historically seen, can you give us a ‘likelihood’ of my preferred trajectory occurring? Maybe 50% chance? Or are the pertinent factors, and the future situation in 7.5 months, just too unpredictable to even venture a guess?