Why is the inflation rate so painful?

[Van]

Yes, under the Biden/Harris administration, the inflation rate spiraled up from about 2% to about 9%, but has come back down to a little over 3%, or just a little higher than the about 2% under Mr Trump's administration.
So why are we feeling so much pain?

First inflation is cumulative. Four years at an average of say 2.5% adds to 10% total, but four years at an average of say 5% adds to about 20%.

But that is only part of the answer. In order to rein in inflation the Fed raised interest rates resulting in the average mortgage rate going from less that 3% to over 7%. That does not sound too bad, but average monthly mortgage cost rose from just under $1000 per month to over $2000 per month. Ouch!

So the economic pain index costs up about 100% with the anti energy, open border, feckless foreign policy with more citizens dying from overdose during the administration than from our citizens during the Viet Nam War.

 

[KenH]

"Why is the inflation rate so painful?"

The Federal Reserve Act of 1913.

 

[KenH]

he Fed raised interest rates resulting in the average mortgage rate going from less that 3% to over 7%.

When I bought my first house - a townhouse - in 1981, my interest rate was 8.25%, if I recall correctly.

 

[Van]

When I bought my first house - a townhouse - in 1981, my interest rate was 8.25%, if I recall correctly.

Yes, but what was your monthly payment as a percentage of your income?

Lets say a person makes $20.00 per hour. A 40 hour week, assuming full time or multiple part time, yeilds about $3200 per month, and using the 28% rule, a maximum payment of of about $900.00. This will buy a home costing less than $150,000.

Not too many homes on sale at that price.

The Dems have killed the dream.

 

[KenH]

The Dems have killed the dream.

Actually, the Federal Reserve has done a tremendous amount of damage to the U.S. economy, especially since 2008.

 

[KenH]

Yes, but what was your monthly payment as a percentage of your income?

Considering that I was just 2.5 years out of college, probably quite a bit. When I started working on June 1, 1978, my monthly salary was $1,100 per month.

 

[Van]

Actually, the Federal Reserve has done a tremendous amount of damage to the U.S. economy, especially since 2008.

Interest rates were low, so the unsupported "tremendous amount of damage" seems dubious.

 

[Van]

Considering that I was just 2.5 years out of college, probably quite a bit. When I started working on June 1, 1978, my monthly salary was $1,100 per month.

Yet with a mortage interest rate about 9%, you qualified. Looks like the house price was less that $40,000.

 

[KenH]

Interest rates were low, so the unsupported "tremendous amount of damage" seems dubious.

This is an excellent article in 2022 on inflation. I encourage anyone interested in the why inflation surged after the economy opened back up after the pandemic and then has come back down to read it.

Inflation: What Causes It, and When Will it Subside?

 

[KenH]

Yet with a mortage interest rate about 9%, you qualified. Looks like the house price was less that $40,000.

It's way too long ago for me to remember the price. If someone asked me to guess what it was, I would guess $42,000.

I will also mention that the 8.25% rate was less than what the market rate was. I got a lower interest rate as it was part of a bond program of some kind back then when inflation in the early 1980s was a much larger problem than it has been in the early 2020s. The Federal Reserve forced the economy into a very deep recession in the early 1980s to get inflation calmed down.

Also, I find rather interesting the commotion in recent days about a 4.3% unemployment rate. During practically my entire adult life, a 4.3% unemployment rate was considered pie-in-the-sky stuff.

 

[Deacon]

When I bought my first house - a townhouse - in 1981, my interest rate was 8.25%, if I recall correctly.

You did well, the same year I grabbed an adjustable at 11.75% for my townhouse.
I refinanced a year or two later when the rate was adjusted higher.

For a long time I thought that Carter was the worst president the US ever had. Amazed that he was eclipsed by incompetence in foreign policy, domestic policy and economic policy.

Rob

 

[KenH]

For a long time I thought that Carter was the worst president the US ever had.

I take any rating by anyone about presidents as best or worst with a grain of salt. There have been 46 U.S. presidents and we tend to rate high or rate low only those during our lifetime, especially our adult lifetime. From my birth, there have been 13 presidents. The other 33 presidents I only know by historical records; and I don't remember Eisenhower as I was too young(having been born in November 1955), and barely know much about Kennedy except for the assassination when I was in the second grade. So there are really only 11 presidents that I am familiar with during my lifetime. And I didn't even adopt a political philosophy about the size, reach, and scope of government until I was around 25, when I became a minarchist classical liberal libertarian.

 

[KenH]

For a long time I thought that Carter was the worst president the US ever had. Amazed that he was eclipsed by incompetence in foreign policy, domestic policy and economic policy.

President Reagan, in my lifetime, is the only U.S. president that has ever been anywhere near my political philosophy; the others have been so much different than me that they are not even in the same ballpark. If I could pick any U.S. president that has ever held the office to assume office again on January 20, 2025, it would be Grover Cleveland. I greatly admire him.

 

[Van]

When I bought my first house - a townhouse - in 1981, my interest rate was 8.25%, if I recall correctly.

Sorry to hear that you are in the grip of significant memory loss. I have purchased four properties in my lifetime, and additionally helped two of my children buy their first home. I remember the price, approximately, of all of them. Same for the 10 vehicles I purchased. First property, 1969 a duplex for $25,000, Second property, 1973 a single family home for $40,000, but I had to spend an additional $10,000 to fix it sufficiently for the bank to authorize my mortgage. Third property, my oldest daughters first home I helped her purchase for $75,000 circa 1998. I could go on but you get the idea.

As for the cause of inflation, excess money or short supply triggers higher prices and if the society thinks they will continue to rise, they will buy at the higher price rather than wait for a return of the historic level. Note the high price of gas from short supply in both Mr Carter's inflation (stagflation) and the Biden/Harris war on fossil fuel.

 

[KenH]

Note the high price of gas from short supply in both Mr Carter's inflation (stagflation)

Which started back during the Johnson administration and the attempt to conduct the Vietnam War along with high federal government domestic spending - the "guns and butter" strategy, and then was exacerbated President Nixon cutting the final link of the U.S. dollar to gold in 1971, and then was further exacerbated by the OPEC oil embargo in 1973, and then was further exacerbated by the Federal Reserve's late response to the need to stop the excessive expansion of the money supply.

 

[KenH]

Sorry to hear that you are in the grip of significant memory loss.

What a rather odd comment.

 

[KenH]

the Biden/Harris war on fossil fuel.

"The United States produced more crude oil than any nation at any time, according to our International Energy Statistics, for the past six years in a row. Crude oil production in the United States, including condensate, averaged 12.9 million barrels per day (b/d) in 2023, breaking the previous U.S. and global record of 12.3 million b/d, set in 2019. Average monthly U.S. crude oil production established a monthly record high in December 2023 at more than 13.3 million b/d.

The crude oil production record in the United States in 2023 is unlikely to be broken in any other country in the near term because no other country has reached production capacity of 13.0 million b/d. Saudi Arabia’s state-owned Saudi Aramco recently scrapped plans to increase production capacity to 13.0 million b/d by 2027.

Together, the United States, Russia, and Saudi Arabia accounted for 40% (32.8 million b/d) of global oil production in 2023. These three countries have produced more oil than any others since 1971 (counting production in the Russian Federation of the Soviet Union prior to 1991), although the top spot has shifted among them over the past five decades. By comparison, the next three largest producing countries—Canada, Iraq, and China—combined produced 13.1 million b/d in 2023, only slightly more than what was produced in the United States alone."

- excerpt from United States produces more crude oil than any country, ever - U.S. Energy Information Administration (EIA)

 

[Van]

It seems we are facing yet another non-stop denial of reality.

We were exporters of fossil fuel, now, again, we are importers. That the Democrats are waging war on fossil fuel to minimize climate change cannot be denied.

 

[Van]

Blaming the Fed for inflation because they were too slow to impose high and painful interest which throttles economic well being is just like the Democrats who blame everyone but themselves.

Can we even admit that buying votes with deficit spending is inflationary? (Load forgiveness anyone?)

 

[KenH]

Can we even admit that buying votes with deficit spending is inflationary?

Profligate federal government spending being accommodated by the Federal Reserve by monetarizing it is definitely inflationary.