On the one hand, the fact that many "zombie companies" already went bust in 2020 when they had a good excuse, might mean there are fewer now than is normal at the beginning of a slowdown.
On the other hand, we have had loose money (interest rates near zero) for most of the last decade or more. I don't think that makes the oncoming recession really "inflation triggered [rather than] caused by credit excesses".
A company which is uncompetitive and potentially unprofitable. In a cheap money environment, it’s easy to pass the buck on these things.
In startup land, think about the parts of the business that get humored when the company takes a round. Maybe the business doesn’t work, maybe it’s a vanity project for some executive/board member. Without a compelling reason to upset people, these can be allowed to go on for a long time.
Yes, and that should raise eyebrows in our industry - it’s easier to burn money for dubious growth when money is sitting around. Uber Et. Al. May finally need to prove they can run at a profit.
Companies issue corporate bonds, which are basically loans broken up and sold on the open market. So with a near 0% interest rate, many companies took advantage by issuing billions of dollars of bonds at low rates, so much so that even at rates of like 2-3% the companies are struggling to pay the interest on these bonds.
Maybe someone can enlighten with hard numbers, but last I looked dead-man-walking companies like Macy's and TJMaxx have billions and billions of bonds outstanding while their annual revenue is a fraction that.
Now as rates rise they can't go to the well again and all these bonds will end in default. Who gets hurt? Pension plans, mutual funds, all the "safe" funds... so buyer beware with corporate bonds right now.
Almost every healthy company has debts. It's more of a question whether they have a generous revolving credit line and whether they can service their existing debts or be allowed to create new ones.
All of this debt information is publicly available and the market has "priced it in".
> In this case, extreme levels of COVID-related fiscal and monetary stimulus pumped money into households and investment markets, contributing to inflation and driving speculation in financial assets
This is common wisdom but I wonder how true it is. A majority of Americans live paycheck to paycheck [1] so it stands to reason the stimulus paid about a month's rent and groceries. I'm having trouble understanding how this stimulus is responsible for today's inflation.
[1] What percent of Americans live paycheck to paycheck?
Consider one aspect of "stimulus" is that a bunch of people suddenly no longer had to worry about rent. All that money they would have gone to rent instead when to Dogecoin and GME.
This is not how money works and I've seen so many people make deeply flawed arguments because they misunderstand it. Money flows continuously and is only at rest when it's held in vehicles like bank accounts, money market funds, and bank reserves.
When you increase the money supply dramatically, that money is in circulation, and various factors determine its average velocity. There's also a multiplier effect in the form of debt created on top of base money. But the key point is that almost all money is continuously flowing through an economy. Incidentally, disincentivizing people from leaving money at rest for too long is precisely why it's important for a currency to be inflationary.
> why it's important for a currency to be inflationary
Money is created when people take out loans right? (like for a home or car, or when a buisness takes out a loan for capex)
So if the population contracts (i.e. the boomers start dying) doesn't that mean there should a contraction of money supply since fewer people will exist to take out loans?
I think what you're asking is whether money can be destroyed and the answer is yes. For example, if the Fed allows debt instruments it holds to be paid down. What matters, of course, is the relative rate of money creation vs money destruction.
Aren't these points orthogonal? Yes, money flows when it's not parked somewhere, but when a lot of people use extra cash for unproductive speculation it tends to make current or future recessions worse. What is needed is deliberate investment of time, money and effort building a prosperous future, not throwing surplus income at shiny things and hoping it magically multiplies.
No they are not orthogonal. You seem to still not understand. What happens to the money used to buy an unproductive speculative asset? The answer is it keeps moving and, in fact, on average it probably continues to move very quickly so long as it's stuck in speculation limbo. Hence, on average, it doesn't stay trapped in speculation limbo for very long. It's a brief detour, not a destination.
Ok, can you help me understand? Are you saying direct stimulus is not a big factor in the recent inflation? If not, what is?
And would you say it's a good thing for the circulation you describe to float free of productive activity? I would say, sure, for a little while and in moderate amounts. But if allowed to expand without bound and continue indefinitely it risks untethering minds and markets from the material foundations that make it all possible in the first place
I look at money as renewable energy and yes you absolutely would prefer that energy be channeled into more productive uses. Whatever would maximize collective human flourishing. But the overarching point I'm trying to make here is that rapidly expanding the money supply will cause problems. Congress and the Fed pumped money into the economy with reckless abandon and now we're paying the price.
While it's true that too much money can cause an overheated economy and inflation, I think it still remains to be seen how much of our current inflation problem is due to increased demand or simply supply restrictions. After all, all the major ports in the US are still back logged and not back to normal. The cost to ship a container from China to a west coast port went from $7k to $20k in the last 2 years and it is just now starting to go back down a little bit.
No but a lot of people did end up saving and having more money to spend.
As you say, basically $40k/person, which is more than a lot of people make (think especially of families with part time workers, like students or parents). And with reduced expenses for many: no commute, no other work-related expenses like clothes, often no childcare costs, less eating out and entertainment.
We lost about 70% of our tech staff to that. Do t get me wrong, we made it as convenient as possible to lay them off if they wanted it and kept them on… but lots of guys don’t want $20 an hour to work when they can make $24 an hour not working or keep working under the table somewhere.
We got about 30% back. One guy in particular came back for about 4 hours before telling us where we can stick it and he was going back on unemployment, anyone of us would have said prior to his vacation he had a good work ethic and never once expressed issue with the job.
As to PPP, we took a very small amount to help keep people on, and two competitors took millions and have now fired a lot of people and moved mfg over to China. So… yea, I don’t think these were the right moves.
It really makes you wonder where all that money went. Monetary Theory tends to treat central bank interest rates and government taxes/borrowing as two sides of the same coin. For various reasons the US has leaned more heavily on the interest rate manipulation over fiscal policy for the last ~30 years - but I do wonder if we're missing an accountability aspect of interest rate based stimulus.
I think the biggest damage came from effectively zero-interest loans to those with means: high net-worth individuals, financial institutions, etc.
Insanely magnified purchasing power for those with access.
Consider housing. Blackrock and the Google Squad hoovered up a ton of real estate and converted them into rentals. Normal people can't offer 20-40% above asking for a home, so they were priced completely out of the market.
Starter homes have doubled or tripled in price over the past four years. Salaries have not risen to match.
Same is true for many other goods, and when combined with deliberate supply chain sabotage at the behest of the ruling class, effectively turned a significant chunk of the population into serfs overnight.
The knock-on effects of this aren't going to be pleasant.
People take pride in their work when they have a future to build towards. That no longer true for younger folks, or even a lot of people in their prime working years, so everybody is just sort of... phoning it in.
Imagine you're a high school graduate today. All you can see down the road for you is an either an infinite series of "gigs", or, if you're lucky, the luxurious serfdom of corporate servitude. In the latter case, you still don't earn enough to ever own property, but you get free food and access to approved activities from your masters in the company hierarchy.
This, and the amount of newly public companies that received nosebleed valuations despite being pre-profit (and often enough, pre-revenue even) thanks to speculation (and the fact that these companies were impressive if only because they were using essentially free borrowed money...which has now dried up). And perhaps even more problematic, the less newly public but still nonetheless overvalued companies that are actually in the major indexes (and thus, in the average person's 401k), now down 50-80% in some cases. Couple that with the bond market ALSO melting down based on the fact that the Fed was engaging in its bond buying program keeping yields artificially low for the last few years and we had a situation where the average person took on far more risk than was suitable due to having little alternative.
Given how much stable companies borrowed to beef up their balance sheets, my suspicion is that the core business environment may not be as badly affected as many suspect, as they have the means available to weather the storm, but that there will be a lot of folks caught out in it when it really hits, likely with quite a few bankruptcies in the tech sector, and as a result, a fair spike in unemployment. That will undoubtedly bleed into consumer spending, but again, given the healthy balance sheets we see in more core industries, I'm not seeing a cascading failure of the whole system on my crystal ball just yet.
Guessing a 6-7/10 if we wanna put a number on "how bad".
It depends on how you mean paycheck to paycheck. A third of Americans roughly rent their homes. Slightly more than half spend more than 30% and growing of their income on housing. Wages have been flat or declining for about forty years in many industries. Roughly half of Americans own equity or stocks of some form through brokerage or retirement accounts, but that could mean as little as one share. Most people don't have money for an emergency $1000 expense.
I would attribute inflation to some combination of the "silver tsunami" of retiring baby boomers, the Russian war of aggression upon Ukraine, the lasting disruption of the COVID pandemic, profit seeking from corporations, over reliance upon JIT inventories and underinvestment into infrastructure for decades, and the usual rent seeking. Some blame may be laid upon the Fed for keeping rates so low for so long, but there were probably sound political and economic reasons for doing so. However, I'm not economist, just an accountant who studied economics for awhile.
> I'm having trouble understanding how this stimulus is responsible for today's inflation.
The stimulus was paid out more to businesses than to citizens. The airline needed bailouts, paycheck protection program, etc. Defense spending is always increasing. Child tax credits and an expansion of snap/wic benefits and stimulus checks reduced child poverty for a time, but we're regressing in the US now as far as child poverty and malnourishment rates are concerned. I don't suppose I covered everything, and I am just recapping from memory here.
All the money given to people living paycheck to paycheck quickly converted into goods and services which generated profit for those who don't live paycheck to paycheck.
All the rain poured onto a city ends up in the sea, all the money pumped into the system eventually ends up in real estate and capital markets.
This makes sense but shouldn't the result have been easily foreseen? I don't believe that those who manage the money across two administrations are totally incompetent, although I'm sure some will say that.
The insiders buy on the way up, and dump on the retail investors before things come crashing back down (who are drawn in by the reports of how much money is being made on Wall St. Not all of them execute flawlessly on this of course, but the bulk of who ends up losing out in this situation won't be those professionals, but rather the retail investors, or those who experienced higher costs on the way up in their 401k's and other retirement accounts and will be selling them at lower prices as they enter retirement (or otherwise will be experiencing likely a few years of sub-optimal growth). A major issue here is that while normally those approaching retirement are advised to diversify from equities into a fairly sizeable portion of fixed income, ultimately, many moved away from this strategy over the last few years due to the Fed's bond buying program, which ultimately drove up the price of bonds as well, keeping yields low, so the usual ability to see at least some growth without taking on the risk associated with equity markets wasn't nearly as available as it has been in the past. Those who didn't adjust, meanwhile, are taking major hits, as their bond holdings have seen value plummet amid the Fed backing off of the bond buying program, and are stuck between selling at a loss or holding low yielding bonds.
As for the managers of those mutual funds...well, most of those funds don't have them anymore, since the Vanguard revolution initiated by Jack Bogle, as the bulk of the industry is passive mutual funds, which simply track their associated index. They're cheap (in terms of expense ratio), but offer nobody steering the ship to react in the face of turbulence...always a trade off to bear in mind.
Most Americans live paycheck to paycheck because they are out spending their money (bars, restaurants, gas commuting, going to the movies etc. = discretionary spending), but because of lockdowns they weren’t able to do that (yes some of that money got spent on other things (computer monitors and streaming services)) but the us savings rate has never been higher[1], and the wait staff that were out of jobs made more money not working than when they did!
It's having the money PLUS not having the goods because of broken supply chains (China lockdowns and shipping through Port of L. A)
followed by doubling of fuel costs which were in part driven by huge surge in demand after lockdowns ended plus no new supply of oil refineries because, in part, the war on fossil fuels in the US and elsewhere
and all fed by our expectations of higher prices that allow the greedy corporations to raise prices with less fear.
> This is common wisdom but I wonder how true it is
Anyone ignoring the effects of the Russian invasion of Ukraine is missing a big part of the picture IMHO. That's the main driver behind higher food and fuel prices (there's shortages of them in some places, which drives prices up and worries markets even in places which aren't impacted - e.g. Indonesia banned the export of palm oil due to rising oils prices at home due to the lack of sunflower and similar oils normally exported from Ukraine and Russia). Then add in the supply chain issues due to the pandemic and the war (a big chunk of the world's heavy duty air cargo aircraft are out of commission), and why are people focusing only on the money supply?
Let's be fully clear about this; while Russia's invasion has some direct effects, the bulk of the economic effects are from the response to its invasion, primarily in the form of sanctions on fuel and petroleum derived fertilizers, rather than following as an immediate effect caused by Russia's actions.
The matter of whether or not the response is justified is another matter, but to clearly understand the economic situation it must be recognized that a choice was made regarding a response, and that choice is what has left us with these repercussions.
Isn't the Russian blockade of Ukrainian exports of foodstuffs of a much higher impact? Are there even sanctions on "sanctions on fuel and petroleum derived fertilizers"? I was under the impression that nothing food related was sanctioned.
Russia is not really blocking exports. Each side accuses the other of being responsible. Ukraine put mines around deep water ports but say they can’t be removed because Russia would then use its fleet.
As with every war, nothing is as simple as it seems in Ukraine.
Why? Most sane people aren’t leveraged into crypto at all.
I suspect this is the crypto bubble burst vs the dotcom burst 2.0. But if you were frisky enough to invest in crypto you deserve what is coming, just like a pets.com investor in 2000.
People have used their crypto and stocks to take out variable rate margin loans. These loans have been used to avoid taxation on capital gains. I know multiple people who have used them to buy houses without a mortgage.
As crypto and the stock market deflate, they will have to sell assets to cover their collateral difference. This means tax, which means more sales. This is going to continue all the way down. I would expect housing price crashes in local markets that skew towards tech.
Crypto is a drop in the bucket and it's down to 1/3 the value it was and it's still done nothing to the economy for the most part. It's a fantasy that crypto bros push that it's a significant force in the economy.
The US Government is $30.5 trillion in debt. It currently pays $437 billion in interest on that debt per year. The US government takes in $4.37 trillion in tax revenue per year.
So we pay 10% of our revenue each year in interest. Not too bad.
But do some simple arithmetic… $437 billion is 1.43% of $30.5 trillion.
As interest rates rise, that percentage rate will go up:
2.86% = $874 billion interest
5.72% = $1.78 trillion interest
We are almost assuredly going to hit these rates across Treasury yield curve over the next year or two. Series I Treasury bonds are already paying 9.6%!!
What’s going to happen when we’re paying almost half of revenue on interest on our debt?
Bonds have an analytic property called duration. Most people interpret that to mean the amount of time until the bond matures. The true definition of duration though is a bond’s interest rate risk.
“Old debt” interest rate can go up because of:
1. A bond matures and must be refinanced at current market rates
2. A bond has a variable interest rate and simply goes up at the next reset period
A higher average interest rate on the “old debt” will be coming across the treasury curve, it’s simply a matter of time.
> What’s going to happen when we’re paying almost half of revenue on interest on our debt?
Why would something happen?
The important number is total debt, not government debt. It's the balance of payments that's killing us, and unloading government debt onto individuals is a no-op in relation to that.
This is a weirdly simplistic analysis from a major financial institution.
I always wonder to what degree financial institutions say what they're thinking, versus what they want the public (or other financial institutions) to think. Or even what they want others to think their beliefs are.
Games in Type II chaotic systems get confusing quickly.
> In short, we are positive about the economy’s fundamentals and believe they can provide ballast in the event of a recession. Nonetheless, the bear-market bottom for stocks may still be 5%-10% away.
This is a bold prediction given that multiples are near all time highs [1]. The Schiller PE ratio suggests that in historically normal times stocks would be worth 50-60% less than they are today, and monetary policy is quickly returning to normal.
While I’m not bullish I think markets are now closer to fairly valued than extreme over valuation, on a Schiller PE basis we are somewhere between the 5 and 10 year trailing averages, the 20 year average puts you at 25.9x which is a 12% drop from here. Sure the 40 year average is at 23.8x but if you used that as a gauge of fair value the only time you would have been below that was the depths of the financial crisis.
I find it amusing that most people in the comments are discussing previous mistakes as they interpret them but mostly not addressing their perception of how bad the next/current recession will be. I think some higher prices in things like food will be elevated for some time. I also expect the economy to recover in a year or so, but I don't expect the recovery will last long for various reasons.
My predictions are that the federal government will step in dramatically in the American southwest next year. Water and crop issues will persist next year just as they've been getting worse for over a decade now, which will increase migration rates, conflicts, and elevate food prices. More people will move from the American southwest to the northwest and eastern US. The Russian war will drag on. To the world's hunger and pain, the US will reduce agricultural and growth exports due to water issues. US efforts to 'reshore' manufacturing and chip fabs in particular will falter and slow as shipping rates fall, as cheap labor centers become available and more cost efficient again, as labor costs in the US increase and labor actions increase year over year even with poor economic conditions, and as water issues prevent or delay Intel and others from building their water intensive chip factories in the US. I could go on but hopefully you get the picture. As I've said before, I'm just an accountant with some light studies in economics and mild curiosity, so maybe take some these predictions with a grain of salt.
I remain unconvinced of a major recession, I think there are a lot of elites out there who are just angry that they now just can't borrow money for free, so they throw a tantrum.
The fed was consistently raising interest rates from 2016 up to the pandemic, and the u-6 rate was consistently falling, and median weekly earnings rising, all in the same time frame.
Going into the great depression, we had hard currency, excess manufacturing capacity, and were the worlds largest supplier of oil.
This time, we have fiat currency, we've offshored most of our manufacturing, and find ourselves dependent on a failing globalized just in time supply chain. We're now dependent on continually drilling and fracking new oil wells to keep up with demand. (Fracked wells go dry in a few years, instead of a few decades)
It's not looking good. Especially when you have a public with zero trust in institutions.
Nobody is worried about "The Great Simplification" that's rapidly coming down the pike, as the easy to reach oil runs out and it takes too much energy to get at the rest.
> find ourselves dependent on a failing globalized just in time supply chain
That one hasn't failed yet. But it might happen, in case that there is a conflict between China and Taiwan. Everybody is in deep shit, if that one happens...
Right now we got:
- rising energy prices and rising 'commodity' prices; Now these trickle down to every product, so that there is rising inflation.
- it is harder to raise money, due to rising interest rates
He said 'failing' not failed. Supply shortages are still being felt in local industries based on anecdotes I'm hearing. I'm pretty sure that'd qualify as 'failing'.
we also need to remember ln digital unregulated currencies which consumed lots of energy that could be used for tangible items production and also created a value from something that was not tangible.
this dangerous combination means that when people realize or convert their investments a tangible, or at least backed up asset, like money, should come to life .
do not get me wrong, I think decentralized approach is good and we do have the same problems with banks serving more credit that they should.
just saying that this is another factor in this pile.
as well as mega billionaires who themselves unbalance the system without any resistance.
at least, the damage they cause should be reverted back to society in someway.
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[ 3.6 ms ] story [ 147 ms ] threadOn the other hand, we have had loose money (interest rates near zero) for most of the last decade or more. I don't think that makes the oncoming recession really "inflation triggered [rather than] caused by credit excesses".
In startup land, think about the parts of the business that get humored when the company takes a round. Maybe the business doesn’t work, maybe it’s a vanity project for some executive/board member. Without a compelling reason to upset people, these can be allowed to go on for a long time.
Maybe someone can enlighten with hard numbers, but last I looked dead-man-walking companies like Macy's and TJMaxx have billions and billions of bonds outstanding while their annual revenue is a fraction that.
Now as rates rise they can't go to the well again and all these bonds will end in default. Who gets hurt? Pension plans, mutual funds, all the "safe" funds... so buyer beware with corporate bonds right now.
All of this debt information is publicly available and the market has "priced it in".
This is common wisdom but I wonder how true it is. A majority of Americans live paycheck to paycheck [1] so it stands to reason the stimulus paid about a month's rent and groceries. I'm having trouble understanding how this stimulus is responsible for today's inflation.
[1] What percent of Americans live paycheck to paycheck?
https://www.google.com/search?q=what+percent+of+american+liv...
https://fred.stlouisfed.org/series/M2NS
When you increase the money supply dramatically, that money is in circulation, and various factors determine its average velocity. There's also a multiplier effect in the form of debt created on top of base money. But the key point is that almost all money is continuously flowing through an economy. Incidentally, disincentivizing people from leaving money at rest for too long is precisely why it's important for a currency to be inflationary.
It isn’t at rest when it is in bank accounts, either. A large percentage of that is loaned out.
Money is created when people take out loans right? (like for a home or car, or when a buisness takes out a loan for capex)
So if the population contracts (i.e. the boomers start dying) doesn't that mean there should a contraction of money supply since fewer people will exist to take out loans?
No they are not orthogonal. You seem to still not understand. What happens to the money used to buy an unproductive speculative asset? The answer is it keeps moving and, in fact, on average it probably continues to move very quickly so long as it's stuck in speculation limbo. Hence, on average, it doesn't stay trapped in speculation limbo for very long. It's a brief detour, not a destination.
And would you say it's a good thing for the circulation you describe to float free of productive activity? I would say, sure, for a little while and in moderate amounts. But if allowed to expand without bound and continue indefinitely it risks untethering minds and markets from the material foundations that make it all possible in the first place
Receiving $600/week in addition to unemployment for 24+ weeks was.
Many hourly workers were making more money than working when you combine $600/wk and unemployment at 30-60% of their regular paycheck.
This dramatically stimulated the economy. And businesses.
And then there are all the PPP funds that equates to 50-75% of a companies annual payroll.
Also dramatically affected companies, and gave a false sense of security - preventing innovating into ‘the new normal.’
These people weren't exactly rushing out and buying Krug and caviar with their $40K/yr pre-tax wage. That's what some tech workers get every month.
[1] https://aspe.hhs.gov/topics/poverty-economic-mobility/povert...
As you say, basically $40k/person, which is more than a lot of people make (think especially of families with part time workers, like students or parents). And with reduced expenses for many: no commute, no other work-related expenses like clothes, often no childcare costs, less eating out and entertainment.
But yea, we had people work construction and dock work for cash.
We got about 30% back. One guy in particular came back for about 4 hours before telling us where we can stick it and he was going back on unemployment, anyone of us would have said prior to his vacation he had a good work ethic and never once expressed issue with the job.
As to PPP, we took a very small amount to help keep people on, and two competitors took millions and have now fired a lot of people and moved mfg over to China. So… yea, I don’t think these were the right moves.
"Small business owner receives $2m in PPP, then uses it to buy a second house" is a common anecdote.
Insanely magnified purchasing power for those with access.
Consider housing. Blackrock and the Google Squad hoovered up a ton of real estate and converted them into rentals. Normal people can't offer 20-40% above asking for a home, so they were priced completely out of the market.
Starter homes have doubled or tripled in price over the past four years. Salaries have not risen to match.
Same is true for many other goods, and when combined with deliberate supply chain sabotage at the behest of the ruling class, effectively turned a significant chunk of the population into serfs overnight.
The knock-on effects of this aren't going to be pleasant.
People take pride in their work when they have a future to build towards. That no longer true for younger folks, or even a lot of people in their prime working years, so everybody is just sort of... phoning it in.
Imagine you're a high school graduate today. All you can see down the road for you is an either an infinite series of "gigs", or, if you're lucky, the luxurious serfdom of corporate servitude. In the latter case, you still don't earn enough to ever own property, but you get free food and access to approved activities from your masters in the company hierarchy.
Given how much stable companies borrowed to beef up their balance sheets, my suspicion is that the core business environment may not be as badly affected as many suspect, as they have the means available to weather the storm, but that there will be a lot of folks caught out in it when it really hits, likely with quite a few bankruptcies in the tech sector, and as a result, a fair spike in unemployment. That will undoubtedly bleed into consumer spending, but again, given the healthy balance sheets we see in more core industries, I'm not seeing a cascading failure of the whole system on my crystal ball just yet.
Guessing a 6-7/10 if we wanna put a number on "how bad".
I would attribute inflation to some combination of the "silver tsunami" of retiring baby boomers, the Russian war of aggression upon Ukraine, the lasting disruption of the COVID pandemic, profit seeking from corporations, over reliance upon JIT inventories and underinvestment into infrastructure for decades, and the usual rent seeking. Some blame may be laid upon the Fed for keeping rates so low for so long, but there were probably sound political and economic reasons for doing so. However, I'm not economist, just an accountant who studied economics for awhile.
> I'm having trouble understanding how this stimulus is responsible for today's inflation.
The stimulus was paid out more to businesses than to citizens. The airline needed bailouts, paycheck protection program, etc. Defense spending is always increasing. Child tax credits and an expansion of snap/wic benefits and stimulus checks reduced child poverty for a time, but we're regressing in the US now as far as child poverty and malnourishment rates are concerned. I don't suppose I covered everything, and I am just recapping from memory here.
https://www.cnbc.com/2020/05/21/many-americans-used-part-of-...
However I don't doubt many considered the stimulus payments "found or free" money and basically gambled with them.
As for the managers of those mutual funds...well, most of those funds don't have them anymore, since the Vanguard revolution initiated by Jack Bogle, as the bulk of the industry is passive mutual funds, which simply track their associated index. They're cheap (in terms of expense ratio), but offer nobody steering the ship to react in the face of turbulence...always a trade off to bear in mind.
https://fred.stlouisfed.org/series/PSAVERT
followed by doubling of fuel costs which were in part driven by huge surge in demand after lockdowns ended plus no new supply of oil refineries because, in part, the war on fossil fuels in the US and elsewhere
and all fed by our expectations of higher prices that allow the greedy corporations to raise prices with less fear.
Anyone ignoring the effects of the Russian invasion of Ukraine is missing a big part of the picture IMHO. That's the main driver behind higher food and fuel prices (there's shortages of them in some places, which drives prices up and worries markets even in places which aren't impacted - e.g. Indonesia banned the export of palm oil due to rising oils prices at home due to the lack of sunflower and similar oils normally exported from Ukraine and Russia). Then add in the supply chain issues due to the pandemic and the war (a big chunk of the world's heavy duty air cargo aircraft are out of commission), and why are people focusing only on the money supply?
The matter of whether or not the response is justified is another matter, but to clearly understand the economic situation it must be recognized that a choice was made regarding a response, and that choice is what has left us with these repercussions.
As with every war, nothing is as simple as it seems in Ukraine.
I suspect this is the crypto bubble burst vs the dotcom burst 2.0. But if you were frisky enough to invest in crypto you deserve what is coming, just like a pets.com investor in 2000.
So many people are insanely leveraged.
As crypto and the stock market deflate, they will have to sell assets to cover their collateral difference. This means tax, which means more sales. This is going to continue all the way down. I would expect housing price crashes in local markets that skew towards tech.
https://www.usdebtclock.org/
So we pay 10% of our revenue each year in interest. Not too bad.
But do some simple arithmetic… $437 billion is 1.43% of $30.5 trillion.
As interest rates rise, that percentage rate will go up:
2.86% = $874 billion interest
5.72% = $1.78 trillion interest
We are almost assuredly going to hit these rates across Treasury yield curve over the next year or two. Series I Treasury bonds are already paying 9.6%!!
What’s going to happen when we’re paying almost half of revenue on interest on our debt?
Bonds have an analytic property called duration. Most people interpret that to mean the amount of time until the bond matures. The true definition of duration though is a bond’s interest rate risk.
“Old debt” interest rate can go up because of:
1. A bond matures and must be refinanced at current market rates
2. A bond has a variable interest rate and simply goes up at the next reset period
A higher average interest rate on the “old debt” will be coming across the treasury curve, it’s simply a matter of time.
The big sneeze involved some fancy face decorations as well. These things aren't cheap either.
Why would something happen?
The important number is total debt, not government debt. It's the balance of payments that's killing us, and unloading government debt onto individuals is a no-op in relation to that.
I always wonder to what degree financial institutions say what they're thinking, versus what they want the public (or other financial institutions) to think. Or even what they want others to think their beliefs are.
Games in Type II chaotic systems get confusing quickly.
Mostly inflationary environment of low interest rates, heavy stimulus, high consumer spending, supply chain disruptions, and irrational exuberance.
Probably looks more like the 2000 cycle than the 2008 cycle as a result.
2008 and other debt driven recessions are much worse - https://en.wikipedia.org/wiki/Balance_sheet_recession
This is a bold prediction given that multiples are near all time highs [1]. The Schiller PE ratio suggests that in historically normal times stocks would be worth 50-60% less than they are today, and monetary policy is quickly returning to normal.
[1] https://www.multpl.com/shiller-pe
My predictions are that the federal government will step in dramatically in the American southwest next year. Water and crop issues will persist next year just as they've been getting worse for over a decade now, which will increase migration rates, conflicts, and elevate food prices. More people will move from the American southwest to the northwest and eastern US. The Russian war will drag on. To the world's hunger and pain, the US will reduce agricultural and growth exports due to water issues. US efforts to 'reshore' manufacturing and chip fabs in particular will falter and slow as shipping rates fall, as cheap labor centers become available and more cost efficient again, as labor costs in the US increase and labor actions increase year over year even with poor economic conditions, and as water issues prevent or delay Intel and others from building their water intensive chip factories in the US. I could go on but hopefully you get the picture. As I've said before, I'm just an accountant with some light studies in economics and mild curiosity, so maybe take some these predictions with a grain of salt.
The fed was consistently raising interest rates from 2016 up to the pandemic, and the u-6 rate was consistently falling, and median weekly earnings rising, all in the same time frame.
This time, we have fiat currency, we've offshored most of our manufacturing, and find ourselves dependent on a failing globalized just in time supply chain. We're now dependent on continually drilling and fracking new oil wells to keep up with demand. (Fracked wells go dry in a few years, instead of a few decades)
It's not looking good. Especially when you have a public with zero trust in institutions.
Nobody is worried about "The Great Simplification" that's rapidly coming down the pike, as the easy to reach oil runs out and it takes too much energy to get at the rest.
That one hasn't failed yet. But it might happen, in case that there is a conflict between China and Taiwan. Everybody is in deep shit, if that one happens...
Right now we got:
- rising energy prices and rising 'commodity' prices; Now these trickle down to every product, so that there is rising inflation.
- it is harder to raise money, due to rising interest rates
He said 'failing' not failed. Supply shortages are still being felt in local industries based on anecdotes I'm hearing. I'm pretty sure that'd qualify as 'failing'.
do not get me wrong, I think decentralized approach is good and we do have the same problems with banks serving more credit that they should.
just saying that this is another factor in this pile. as well as mega billionaires who themselves unbalance the system without any resistance. at least, the damage they cause should be reverted back to society in someway.