Economy

Persistent Inflation Puts Yellen in the Spotlight – The New York Times

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Persistent Inflation Puts Yellen in the Spotlight – The New York Times

WASHINGTON — At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers that it was time to “act big” on a pandemic relief package, playing down concerns about deficits at a time of perpetually low interest rates and warning that inaction could mean widespread economic “scarring.”

A year and a half later, prices are soaring and interest rates are marching higher. As a result, Ms. Yellen’s role in crafting and selling the $1.9 trillion American Rescue Plan, which Congress passed in March of last year, is being parsed amid an intensifying blame game to determine who is responsible for the highest rates of inflation in 40 years. After months of pinning rising prices on temporary supply chain problems that would dissipate, Ms. Yellen acknowledged last week that she had gotten it “wrong,” putting the Biden administration on the defensive and thrusting herself into the middle of a political storm.

“I think I was wrong then about the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unanticipated “shocks” that boosted food and energy prices.

CBO releases U.S. GDP growth, inflation estimates

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CBO releases U.S. GDP growth, inflation estimates

The nonpartisan Congressional Budget Office estimates that real gross domestic product, or GDP, will grow 3.1% in 2022, it said in a Wednesday report. “In CBO’s projections, the current economic expansion continues, and economic output grows rapidly over the next year,” the CBO said in its report. The upbeat tone of the report appeared included an implicit prediction that the Federal Reserve will be able to raise interest rates without tipping the U.S. economy into a recession.

I think people may be wrong about stagflation ahead 🛑

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While I think the economy may slow in coming months, I am not sure if that will lead to stagflation. Stagflation only exists if inflation doesn’t slow when the economy slows. Much of the current bout of inflation is due to high demand and not enough supply. A recession is likely to lead to significant demand destruction, especially with oil and energy usage but also most other material goods.

In the 1970s, stagflation was a relatively new thing. The federal reserve didn’t really know the way to break inflation is to slam on the brakes on economy really hard, no matter how hard the politicians and the public scream in pain. But Paul Volcker taught the economic world a lesson — it’s possible to break inflation — if you slow the economy enough by high enough interest rates. Jerome Powell is a Republican, and there is no reason to think he will be gentle at raising interest rates to keep President Biden happy from the mobs of angry home-builders, automakers and farmers likely to storm the Washington Maul. 

Pay Myself First

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Ever since I got my first job, I always “paid my future first.” In other words, at least part of my paycheck was automatically deposited into one kind of savings account or another, only to be touched when making a long-term purchase after allowing the money to grow for a number of years. 🤑This day of age, paying your future first is pretty easy — automatic deposits can withdraw money from the account where your direct deposit goes in, and it’s like the money never existed — except it does and it’s being saved.

As I’ve gotten older, made a little more money, gotten promotions and the alike, I’ve increased the amount I’ve been doing to “pay my future first”. Normally if I get a raise, a cost of living adjustment, or a bigger tax break, I always put the majority of increased funds towards “paying my future first”. 🏦 0Sure I like having a little more money to spend, but I figure I am mostly content with my life now and no need to blow the money — when I can invest it and have more later on, compounded by interest and growth in the markets.

I’ve also diversified where I “pay my future first” money to. Diversity is a good thing because it ensures if any one investment doesn’t work out, there is another one to fall back on. If one goes down, one other is likely to go up. Some are tax-advantaged, like my ordinary IRA deferred compensation for retirement, while others like my Roth IRA are not tax-advantaged, at least not until I retire and take money out of that account. Some are very stable but have very modest returns, like my FDIC-insured savings account, or the FDIC certificate of deposits. 💸Some are mid-term investment accounts — things that are maybe have some substantial short-term risk but are investment vehicles that will grow at the rate of the market growth. The later will help me down the road in 10 or 15 years when I go to buy land and my off-grid cabin.

Some people say I should rush into my future. But I don’t know, I’m pretty happy the way it is. I’d rather consume less and put more towards a better tomorrow, in a series of diversified investments.🚜🏡 Even if the money today that I’m “paying towards my future” I understand the benefits of compounding, and I know that eventually I will get towards my life goals.

I wish more people would be focused on making money and not their community.

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I wish more people would be more focused on making money and not their community.

I think people often seek out community and political involvement as an excuse to cover up their own personal failings.

Rather than focus on self improvement, the personal goal of too many becomes fighting for something that gives them indigestion on the evening news while eating dinner. The news might be a distraction but it’s not a way to self improvement. But making money is key to liberating oneself, actually making a better world for the oneself. Money is a means, it allows one to better support one’s needs and offers greater choices in lifestyle and where a person chooses to live.