Inflation May 2022 | Page 2 | General financial discussion | Discussion forum

cgouimet said

You obviously need to realign your consumption to the StatsCan CPI basket of goods. LOL ...

We are between 55 an 75 retired seniors with no interest in returning to work. So, we are not worthy of 75 government support and our income is tied to one pension and investment income. Even if we did qualify for government support, they find a way to claw it back.

On the other hand, we have NO debts, we do NOT rent, we do NOT drive much and are in NO need of new furniture, appliances or vehicles. Therefore, much of the inflationary basket of goods is NOT impacting us much.

And ... We used the slow pandemic travel demand period to renew our passports unlike the procrastinators now whining at Service Canada centers ...  

We are seniors too and Inflation has been a bonus for us in a couple ways.

Just traded in a 5 year old car and got more than we paid new. Was able to pay last year's MSRP on a new EV so the diff was only ~10k after rebates and taxes. Pre-inflation diff would have been 25k at least!

Interest rates have doubled which has doubled our fixed income portfolio.

Like you we have no debt, house and major assets are all paid off. Gas price is not an issue because we've been driving EV's for 5 years.

Since we are in a large urban area we can shop sales, freeze large portions, so grocery price inflation is largely irrelevant.

Restaurant prices are ridiculous though, up over 50% which simply means we go out less

Vatox said

You do realize that it’s a basket of goods with different weighting’s, right. Some higher, others lower. It’s different across locations too. Trying to make your own spending habits and experiences as the average, doesn’t work very well.  

Yes, I realize that and I respect your opinion and can't argue with it.

My point, even though I mentioned Real Estate that also covers home repairs/maintenance that a lot of Canadians have.

For the average home owner these 50%+ costs increase might not seem apparent, until heaven forbid you need a new roof/furnace/ac/bathroom/window/fence/deck etc etc

Then you will realize it, that milk going up another 2% on a yearly basic is peanuts in real $terms, compared to what your new roof will cost you for example.

In other words it's 7.7% of what? As savemoresaveoften said, and I agree.

Assume you can buy nothing, you live on air, for free. So your million bucks' in the bank might only be able to buy $900k worth of stuff next year, $820k the year after, and so on, but it's all irrelevant to you because you buy nothing. I understand that to be the view expressed.

I followed until you said zero interest rates killed off most retired Japanese people - really? And that, due to these deaths, Japan's economy today is in a state of destruction? I missed that big story.

TommyT said

The war had nothing to do with it. Ben Bernanke's monetary policies created all the inflation we see today. The fact that his policies were never changed created all the inflation. The Fed put was still intact the backstopping of any losses in the U.S. stock market was still intact and interest rate suppression was still intact as was his quantitative easing. A lot of people blame it on Greenspan but it was Bernanke who loused up the entire world by not letting the banks in America crash in 2007/2008.  

The war impacted energy prices which did have an impact on inflation. The question is how much vs Covid policies.

If we take gas, some of the inflation is due to high refining costs (roughly tripled in the US since Covid). That has nothing to do with the invasion and everything to do with shutting down refineries when the need collapsed due to Covid. At the same time government policies in Canada and the US are scaring off investors, making movement of oil to markets and refineries more difficult and costly while supply of labour force has been dwindling. That made it more difficult to mitigate Russian invasion’s impact on oil prices. Which already started going up pre-war, as a result of increased pent up demand for travel, etc as people were flush with dollars after 3 rounds of cash handouts and travel became feasible again.

I am struggling to see what the 2008 bank bailout had to do with any of that. Bank Bailout act was proposed by Treasury Secretary Henry Paulson.

savemoresaveoften said

Here is modern banking101 for you. There is no such thing as allowing "only" American banks fail while other banks around the world will be intact. There are trillions of dollars (yes trillions) of interbank trades between all the global banks, be it as simple as interest rate swap, CDS, and other more complex FI products. In other words, it will be a domino effect that will bring down all. Yes you heard it well, it will be ALL, including Canadian banks.
I should say Nigeria bank probably not in the loop and will be safe. However is your money with Nigeria...

If you ask why do banks participate in all these interbank trades, there is a simple example:

Corp A enters into a interest swap (as vanilla as a product can be) with Bank of America, BoA traders turn around and hedge the trade with HSBC, HSBC then turns around and hedge it with Royal Bank. Royal bank hedges it with futures contract on the exchange.
Now the swap BoA entered with HSBC is worth -$100mm, BoA goes belly up, HSBC is being owed $100mm, and at the same time it owes $100mm to Royal bank. Now Royal bank is down $100mm if BoA brings down HSBC. Not you get the picture. And there are hundreds and thousands of these trades in the global banking system.
Go to a big5 annual report and look in the section regarding derivatives. You will see the numbers are in the billions and billions for each bank.

Most dont understand nor appreciate what the central banks have done back in 2008/9 to save the world. They DID.  

Part of the saving the world scheme should have included jailing a few bankers , put some legal means in place for the ones whose banks needed saving illegal to collect a bonus for a decade, and put in real change to avoid these greedy banks from repeating the same mistakes.. my understanding is derivatives are bigger, much worse, and every bit the same risk they were in 2008

Bill said
Yeah, I always wondered how those financial catastrophes just ended up magically going away, not much pain except for a few folks, and on we went as usual. Guess the central banks do have a lot of power, they'll just have to save the world again next time.  

You can argue they save the current generation and have the future generations to pay for it. But then again a lot of things are done the same way....

Re: derivatives are evil, that is not 100%. A lot of simple derivatives are needed in the modern economy, and interbank trades effectively help to spread the risks and make the system stronger. Obviously any system that are very intertwined will be subject to domino effect when there is systematic shock. Like a suspension bridge, the system is super strong, but one snap cable will bring down the whole bridge. Of course there are derivatives that has embedded leverage and funky payout. Those trades are capable of bringing down a small regional bank but not the whole system. In fact the last few major bank failure globally are the result of rogue trader hiding bad trades, nothing to do with derivatives.

"(Bloomberg) — Inflation, labor shortages and rising interest rates will push the Canadian economy into a moderate recession next year, according to the Royal Bank of Canada."
https://financialpost.com/pmn/business-pmn/rbc-says-canada-is-headed-for-a-mild-recession-in-2023#:~:text=RBC%20Says%20Canada%20Is%20Headed%20For%20a%20Mild,%E2%80%A2%201%20minute%20read%20%E2%80%A2%20Join%20the%20conversation

Wages were actually outpacing inflation for much of the pandemic, with everyone cringing at home. Now everyone's playing catch-up, but the price-givers are winning.
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