I hope everyone enjoyed the generation (1995-2022) of abnormally low rates, you won't be seeing that again
How did we avoid inflation for so long during this low-rate regime? In 1870 we had the same issue - deflation in the face of money creation...the industrial revolution was happening at the same time which ate up all the money in productivity gains.
For our era, it was China. Chinese manufacturing kept things cheap even as we printed and printed. That's over too.
Get ready to be poorer, there is no alternative scenario...Americans are just going to be poorer.
Wouldn't manufacturing tend to move to the next cheapest place, rather than to the USA? Not that I know where that would be, maybe India or Latin America?
The south-east Asia countries near China or maybe costal areas of Africa? It would help if they have a stable government and resistance to climate change.
Way more complicated than simply "next cheaper place". Modern manufacturing has long, really, really long supply chains. You also need a mix of labor (low-end, mid-range, high-end).
The Chinese-focused East-Asian manufacturing worked because you could get mid-range labor from China/Malaysia, low-end from interior parts of China/Vietnam/Bangladesh, and high-end labor from Korea, Taiwan, and Japan.
Latin America is a good candidate because of the easy availability of raw materials and short supply lines to America. But their internal stability is a huge problem.
Spending in restaurants will slow down soon. Restaurants were reluctant to increase prices post pandemic shut downs to attract more customers. But now that has changed. More and more restaurants are increasing prices and consumers are noticing. And if you do app based delivery, that increase is even more pronounced.
It’s a chain that can be found everywhere in America from the Vegas strip (with a VIP party room upstairs no less!) to the smallest town and sells very cheap “Mexican themed” food like tacos and burritos. It’s especially loved by people on a tight budget like teenagers and college students as well as drunk people in the middle of the night (most are 24 hour drive thrus) of all income brackets. The calories per dollar spent are hard to beat anywhere else but you are encouraged to not dwell on the quality of the meat.
Taco Bell food is more like the Subway sandwich quality food. Its not the best but its available everywhere. We have places that sell Döner Kebab but its small chains here and there.
Maybe in function but not in quality. The kebab places have an honesty to them of an actual pile of meat... imagine if McDonald's decided to sell "Italian themed" food and called itself Spaghetti Bowl.
Fills some of the same niche but significantly lower than the average quality, I suspect. Little to no variability though, compared to going to an unknown doner place in a new city…
If I had to distinguish Taco bell from, say, McDonalds, I would say that Taco bell has the advantage of being filling but not putting you in a food coma.
One of it's biggest unsung heroes is the bean burrito; It avoids most questions about the meat and has been a popular option among folks who wanted to avoid meat in their diets. It's... almost healthy. Almost.
Taco Bell would be if a large corporation operated a bunch of kebab shops, but used the absolute cheapest ingredients possible (with said ingredients largely being precooked and prepackaged such that anyone with so much as basic motor skills can slap a kebab together in 15 seconds), "Europeanized" it until there's only superficial resemblance to a kebab at best, and then sold it for similarly cheap prices from drive-thru fast food restaurants.
There are a few diverging forms of Mexican food in the US; Taco Bell is the mass-market version of the 1960s school of thought that said "I've already browned this hamburger meat; if I put the rest of our old jar of ground cumin on it, that makes it 'authentic'." Midwesterners with no Hispanic ancestry at all who grew up with "taco night" are familiar with this. Then there's the taqueria style, where people who don't like cilantro or onions suffer through them anyway, because at least it's 'authentic'. And then there's the Chipotle "we're gonna need a bigger tortilla" style where any pretense at 'authenticity' was traded for jamming another starch in there.
They've already messed with it a few times, the dog isn't the same as it used to be (and the polish sausage isn't an option anymore iirc) and the soda went from Coca Cola to Pepsi; I assume they made a deal with Pepsi where they get it for free.
Or available during fewer hours. Around me, Taco Bells close at night and Sundays. Or the workers are worse quality than before, and so your food comes out worse or with less reliability.
I’m guessing you were being facetious, but in case any non-California residents don’t catch the joke: My favorite burrito in LA is $7, my second-favorite is $15 but is so large I have to split it with my partner or a friend, and burritos from my favorite taco truck are $9. We are far from $18 burrito territory unless you’re trying to eat expensively.
If you're in LA you're far from burrito territory. LA is south of the burrito-taco line. North of the line, burritos are tastier. South of the line, tacos are tastier.
Is this for premium pizza (eg. at an independent store with wood fired oven) and/or with delivery? I went to dominos.com and saw they have a 3 topping large pizza for $8 (pickup).
> I went to dominos.com and saw they have a 3 topping large pizza for $8 (pickup).
Ah, the in-app coupons. Honestly, these are kind of a requirement nowadays if you want any fast food for a decent price.
Go look on your phone for the price of that same Domino's pizza without the coupon: for me, that same pizza would be $21.24 before sales tax. The coupon is a 62.5% discount!
When the had the "$3 off pickup" coupons for a while that stacked ($10 minimum), you could extend it to a 69.5% discount.
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Earlier this week I coupon stacked and got a McDonald's double cheeseburger, a large diet soda, a Wendy's Crispy Chicken Sandwich (+Tomato, +Pickles) and a Wendy's large fry for a total of $2.88 across both transactions, sales tax included. 1300 calories that served as both my lunch AND dinner. I couldn't make equivalent food at home for that price, despite sale shopping.
Without coupons, and deal stacking? $9.54, which means I got a 70% discount.
If I bought all that in just one of the stores (instead of going to two, since they're next to each other), it'd likely be closer to $11.
There’s always coupons for Dominoes though. It’s like Michaels is Kohl’s — you’re supposed to be using coupons every time you buy something because that’s presumably how their prices are designed.
Exactly. The coupons for Domino's are on the front page of their website, no quantity or time restrictions, no app is required, and no account creation is required.
It's basically their regular price. Unlike something like McDonald's which requires the app, precise location permissions, and limits coupon frequency.
I may be spoiled by living in the land of Pizza chains (Dominos and Little Caesar's are HQed nearby) but would not consider Dominos a fair comparison.
As my personal benchmark, I use one of the more 'solid' local chains, that IMO captures most of the essence of a 'Corner Shop' pizza. i.e. the oven probably isn't wood fired, but it's going to be better ingredients and IMO better quality product than a major chain. (1)
In any case, their 2 Large 2 Topping 'coupon' has gone up from 20 to 25$ over the last year. A 25% increase, which is pretty notable to me.
I've also seen my local mexican chain raise their prices, but by a lower mark. My 6-pack of enchiladas has both gone up in price (from 10 to 11.50, a 15% increase) and is no longer quite large enough to minmax over 3 meals (2 at a time used to fill me up. not anymore.)
(1) - To give you an example of a 'corner shop' pizza, or at least what it means to me. Imagine a place where the staff is friendly but smokes weed outside the store half the time. The local residents don't really care however, because the pizza comes out even better those days. It's one of those places you don't brag about going to, yet gets all the compliments if you bring it to a party.
I rather think it's the price finally catching up to the actual cost of employing people to make food for you. What's wild is how we got away paying people such ludicrously low wages under such poor conditions for so long.
A large part of inflation may just be fairly rebalancing wages. Prices of a lot of goods/services with very thin margins (e.g. restaurants) have always been artificially deflated because they've always paid their labor exploitatively low wages. As that starts to change, and those industries' wages increase faster than wages of industries that haven't historically paid exploitatively low wages, then the latter group of people will experience inflation, even if the total money supply remains constant.
Cooking for one in the US with ingredients that aren’t laced with preservatives is incredibly expensive, especially if you live in a city. I found it to be the case even 6-7 years ago that it was cheaper to eat out every night than it was to cook.
This is true (unless you're okay eating the same thing as leftovers for a week straight); cooking for two makes it a lot easier and opens up more options.
I only really eat chicken, so my dog counts as an interested party with regards to meals. It doesn't take much effort (eg don't sauce her food, nothing fried, lots of rice and veggies in the rice cooker) and she is always thrilled for the variety.
I blew a friends mind one lunch when we stopped at the store to get dog food - by pointing out the giant bag of frozen boneless skinless chicken breasts was cheaper per pound than the dog food.
Just be careful about making sure they're truly boneless; I was always taught to not give dogs even boneless chicken (unless it's part of actual dog food) due to the risk of bone fragments.
This is only true if in that hour it takes to make pizza yourself, you actually increase your lifetime earnings by more than the cost difference between store bought and homemade pizza.
That often isn't actually the case unless you make lots of pizza - for example with hamburgers I can't make one for myself cheaper than the local bar, because I can't buy a single slice of tomato or five leafs of lettuce. I can get a single patty at the meat counter ($7/lb, so about $2 usually), but can't buy a single bun or a slice of cheese.
You can buy ground beef in bulk for much less than $7/lb and freeze it. You can buy blocks of cheese and refrigerate them. You can refrigerate/freeze buns bought in bulk. You can buy several tomatoes at a time and use them for other purposes before they go bad (salads, salas, pizzas, etc.) Same goes for lettuce and pretty much any other ingredient except defrosted sashimi grade fish or live lobsters.
They taste fine, as long as you toast them and don’t let them get freezerburned/use them quickly enough (within a week and a half) that you just refrigerate rather than freeze. Good buns (i.e. without processed ingredients or preservatives) generally only come in <=4 packs anyway; the 8 packs are mostly processed crap that can sit out for a couple weeks without going moldy.
Grill them in an oven, don't microwave. They are as good as fresh and crunchy.
Some places even let you buy the "restaurant" or "catering" frozen bread/buns that are pre-cooked but not fully baked. So they're risen, half-baked and frozen, ready to be "baked" from frozen by the final restaurant/caterer. That's how restaurants do it, they don't all bake or buy fresh-bread every day.
Ye not being able to buy stuff at whatever quantity is annoying and probably a huge reason for waste.
The biggest problem with hamburgers is the bread which I can't seem to get in packs of one or two. Lettuce and tomatoes you can use for any meal but if you buy 4 buns you either eat hamburger half the week or throw them away.
Cheese lasts a long time in the fridge, and even iceberg lettuce does as well. My local burger/micro-brewery has been sliding in quality for the last two years and I finally reached my tipping point. Normally, it's about $12 for a 1/3lb burger and fries there.
So I found a local butcher who makes a 'steakhouse' grind (chuck, brisket, short ribs) for about $7/lb. Two slices of cheddar are about a buck for non-Kraft cheese, buns and condiments are about another buck. Takes me about 9 minutes to cook at home, and I have a custom, super fresh and hot burger that tastes better than anything I've every had at a restaurant. Now I do miss out on fries, but eh, chips will do as a replacement. At the end of the day, I have a burger and chips for about $5, plus leftover stuff for other sandwiches. Throw in a decent beer, and I'm still cheaper than the microbrewery. And no driving required.
Of course, I have to do the difficult part of cooking. /s
> I can't buy a single slice of tomato or five leafs of lettuce.
Hit up the salad bar for this stuff if your grocery store of choice has one. It's usually measured by weight, and it is much cheaper and less wasteful.
This doesn't seem terribly surprising. Even a hole-in-the-wall restaurant probably has better economies of scale ingredients-wise than even a large household. On the other hand, restaurants charge for their labor - and if a restaurant meal is cheaper than cooking at home, then it's yet another suggestion to me that restaurant workers are underpaid.
I am finding that prices at restaurants are increasing while quality has been decreasing. It really puts me off from going out to eat. A lot of places I frequent have really dipped in quality. It’s a combination of lower quality ingredients and staff no longer giving a shit (i don’t blame them) + turnover of experienced staff.
Haven't unskilled wages more than doubled in the last 2 years? Pre-COVID, I used to always see Now Hiring signs barely above minimum wage. Now the same signs all say $18-$20 an hour.
I can't make any sense of that. Is it saying that since unskilled jobs are important, they don't exist? Remember that "unskilled" is about how many people are capable of doing a job, not how important it is that someone does it. Anyway, if you object to the term "unskilled", then pretend I asked this instead: "Haven't wages for jobs that require neither completion of college nor trade school, and for which all required skills can be learned on-the-job, more than doubled in the last 2 years?"
The biggest expense for most people is housing: rents are high, buying is shockingly expensive compared to the 1980s-1990s. Raising wages, which should happen, will only drive those prices even higher unless you drastically increase the supply.
Building a massive amount of practical starter homes around every major city would go a very long way.
You also need to address feature inflation. Governments in Australia at least keep adding 'standards' that in aggregate really increased the real cost of providing that home.
The wage growth for much of the world has been significant over the last decade. US workers have lost out, perhaps deservedly, due to the global equalization of wages.
Nobody's personal inflation will match anyone elses - if you drive 500 miles a week your inflation will be fair higher than if you ride a bike a couple of weeks.
"Substitution Bias" will change your personal basket and your weights, but it's reflection of real inflation.
The problem isn't CPI being too high. Or too low. It's that people don't understand what it's saying, or they argue with the weight of the baskets.
(EDIT: And of course even the inflation in a very specific good - like 1 pound of uncoocked prime grade beef, will itself vary depending on geographic location, doesn't mean the average is right or wrong, when they tried to find the average person in the US military they couldn't find him - not a single person met the average once you factored in just half a dozen measurements. It doesn't mean averages are meaningless though)
For obvious, numerous reasons we are producing less stuff now than before, so we have less available to consume.
Prices must outpace wages, or we get empty shelves, or we can ration. But we MUST consume less on average.
We could talk about taking from the rich, but actually the rich don’t consume all that much in aggregate, so that doesn’t help much (wealth and income don’t matter for this purpose, only consumption).
Given the combined supply shocks associated with the pandemic and Ukraine, I'm a bit curious why things haven't been much worse.
For better or for worse, human labor and fossil fuels are the two most indefensible ingredients of our current global economic system, and the supply of both has been badly disrupted.
Obviously a lot has changed since the 70s, but why exactly aren't we having 70s stagflation or worse in the US? Do domestic oil and gas play a role?
We aren't having massive inflation yet because we have labor from China and other countries producing goods for us. When one producer goes down, another ramps up.
If America were producing its own things alone, the supply shock would have pushed inflation much much higher.
I can go on, but to put it simply Russian (and Belarus) GDP is much higher than Ukraine GDP. It’s safe to assume they produce more and strict sanctions on them will have a greater impact. Ukraine is still producing, so some of their goods are still able to come to market. That said, yes some was destroyed / impacted I’m sure — but again, far less than sanctions or the lockdowns.
Anyone who wants to can join nato? What is the long term cost of Russia owning Ukraine? Is there any? Russia interferes with our politics but whether they invade other countries most Americans couldn't place on a map doesn't have much to do with that.
I mean the difference here is Russia has shown it barely has the competency and supply chain to attack their next door neighbor. Does anyone honestly at this point believe they have the capability to blitz into Europe, or anywhere else really? This isn't nazi Germany that can take the world inch by inch. They will unquestionably be defeated by nato, nukes aside. And their nukes don't care how much territory they have or don't have.
A recession has already started? Someone should tell the labor market. There is still substantial monthly job growth. 250,000 in June. Doesn’t sound like a recession to me.
What it does sound like is younger people hoping for a recession because they think it will collapse housing prices. They’re wrong, but what’s new.
The highest authority on this matter is the NBER. Their definition is pasted, below. I don’t see a significant decline and so far it has not impacted employment. We’re still adding a quarter million net jobs each month.
“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
> but why exactly aren't we having 70s stagflation or worse in the US?
we had strong unions back then which would demand double-digit COLA raises in salary producing a wage-price spiral.
given how people could actually afford homes back then, though, i don't think this was a particularly bad thing.
what we have now contains all the inflation in the system to the upper class and asset bubbles.
we need either to have the cost of housing deflate or the wages paid to inflate. it will be less painful to inflate wages. this isn't what we're going to do though.
Are you sure? Numbers I looked at suggested both global and US manufacturing output is up both in terms of output and percent of GDP. So consumption could rise.
GDP is measures dollars in the numerator. This is the same concept of retail sails increasing in terms of dollars sold, but decreasing in terms of actual things sold.
It blows my mind to see people saying that people starving and barely getting by is great for the economy. But I guess it is because it creates a system where people are desperate for income and that leaves them vulnerable for abuse. Hence norm of today's wage slave culture.
Who is saying that and in what way? That comment is simply saying that if things aren't being produced, they cannot, by definition, be consumed. So also by definition, with the same (or larger, due to QE) amount of money, less things need to be consumed, hence higher prices / inflation.
Price of goods is set by what the market will bear. If demand is higher than supply, prices will rise. This is the situation we have today. Inflation caused by supply chain disruptions and increased demand.
The only way that prices will fall is if demand wanes, or supply increases.
No one said people starving is great for the economy. It’s a statement of fact that inflation will not abate unless demand falls or supply increases. It’s pretty hard to increase supply right now.
Let's start with mobile phones. Do we need new models every 2 weeks..I can't even understand who is buying so many when I look at the number being reported.
Golly gee gosh, I'll just buy four fewer iPhones every month and use the savings to pay my rent! I'll just buy 200 fewer iPhones and put my kid through college! Why didn't I think of that sooner?
> We could talk about taking from the rich, but actually the rich don’t consume all that much in aggregate, so that doesn’t help much (wealth and income don’t matter for this purpose, only consumption).
This is certainly what traditional economics says (they consume, rather than invest) because it's what rich people want us to think, but it doesn't hold out.
For one thing, their private jets and charter flights eat up a lot of fuel. Their lifestyles aren't free.
Second, attribution is a hard problem. When all the poor people drive to work in offices in places chosen by rich people, to create surplus value for the rich, who is consuming all that gasoline? Is it the rich, who benefit from this economic system and the poor being forced to participate? Or is the poor, who are the ones directly buying and using the fuel? Hard to say; at the individual level, attribution is probably impossible.
Third, the whole notion of "poors consume; the rich invest" is only true in proportionate terms. Sure, the billionaires don't directly consume 100,000 times as much as average people--simply because that would be ridiculous. No one can eat 100,000 hamburgers for lunch. But they do consume 100-1000 times more than average people--fuel is a big one, and those 20,000-SF houses aren't cheap to maintain--and this adds up. Their footprint on resources is bad enough; their overuse of land is destructive--this kind of private wealth is a catastrophic misallocation of resources.
Finally, what tends to happen with the rich is that they don't put their money into direct consumption (because, again, there's no hedonic payoff to having 100,000 hamburgers for lunch; 99,995+ will go to waste) so much as they use what they have to further secure personal and familial advantages, both economic and political. That's what this investment is: the configuration of society by the last round's winners to ensure they'll win the next round. This has resulted in an economic system that benefits them and keeps the middle classes comfortable enough to survive but--you're right on this--is unsustainable.
You're absolutely correct to say that "hit the rich" is far from sufficient here. We in the middle class are going to need to sacrifice. Thing is, no one's going to sacrifice anything with the current upper class in charge. Would you give up anything for these people and the society they've built? I sure wouldn't. You can't ask people in the middle classes to eat less meat and fly less often if you're taking a private jet to Davos. Neoliberalism has a lot of problems, but a big one is that these WEF people have literally none of the moral authority on which they seem to believe they operate.
Just wondering, any sources for anything you’ve said here? Last time I checked, not every rich person has a private jet or 20,000 sq foot home, but I’ve been wrong before.
Poor people don't own investment capital. Prices are quick to rise, slow to lower, and the capital-owning class captures the difference as increased profits.
The richest 1%— the more than 60 million people earning $109,000 a year—are by far the fastest-growing source of emissions. They live all over the world, with about 37% in the U.S. and more than 4.5% each in Brazil and China. [1]
Some jobs are far worse than others (working in a disgusting sewer) and others are far harder than others (managing an organization of thousands of people).
No matter what the economic system, somehow you need to convince someone to work in the sewer and operate complex orgs of thousands of people.
One option is to use a gun - you point it at people you don’t like and make them sewer workers.
Another is to arbitrarily hire and have no consequences. This leads to incompetence and mismanagement, as often happens in government everywhere and in socialist / communist nations that nationalize industries and staff them with political hires.
In capitalist societies we give more stuff to people who do hard jobs and / or are highly effective. This is the carrot - work a high stress or shitty job and get more stuff. The stick for failure is you get less stuff, but at least you aren’t shot in the head as they do in other systems.
You can argue until you’re blue in the face about neolibs / the rich / whatever. Doesn’t change the fact that inequality is a requirement for society to function if you expect someone to work in shit-filled holes underground all day while others pontificate about philosophy.
If we gave more stuff to people who did harder jobs, immigrant day laborers would be rich and trust fund investors would be poor.
I think you realized that you were on shaky ground and stuck "effective" in there, but I'm going to call you on that one: please, explain to me how the strong correlation between shitty jobs and shitty pay is entirely about leveraged value creation and not at all about social status and Rules for Rulers?
Life is not fair and not everyone who works hard gets paid more. However on average the better skilled get paid more, and this is exactly why so many immigrants come to America despite our supposed bare-knuckle form of capitalism - we are a place where people who work hard and succeed can get ahead.
Please, if you don’t like America then don’t come here, or if you are here just leave. However a lot of supposed socialist utopias in Europe have effectively zero immigration that allows you to be a full citizen on their pension rolls. Just see how hard it is to immigrate to the Netherlands or Norway.
Sadly that perspective is misguided - its harder to be a trust fund investor. The evidence is right in front of you, otherwise the labourers would be doing that instead.
It's not about how they spend money, it's about how they "make" money. It's about their passive income.
The economy is a machine that squeezes workers: it pays as little as possible while extracting as much value as possible. The juice that results from the squeeze then gets distributed according to who owns the financial assets. One person's passive income is another person's obligation to pay up while receiving no actual work in return. The true excess of the rich is the juice from the squeeze -- getting paid for being rich -- not in the particulars of how they spend it.
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Ok, so that framing was hyper aggressive, more than I think is fair, because there is another side to this story: as a consumer, you get to put the squeeze on producers and make them compete, investment carries risk, consumer excess exists too, etc etc. You know the story, you've heard it a hundred times before. However, I'd wager you have heard the "how capitalism works for you" side at least 10x as often as the "how capitalism works against you" side, which should be suspicious, because both are true and both are highly relevant to your life. Also, if you felt that the paragraph above was hyper aggressive, you should also feel that the traditional narrative is hyper aggressive, because they are mirror copies of each other.
This hints at the real issue which is that our policies and culture have been hijacked to aggressively favor capital at every turn. The inevitable result is "the wedge" graph, US economy expands 5x while 80% of people see a regression in wealth. The rising tide does not float all boats. Actually, it sinks most of them. Even the meager promises of the "rising tide" social contract have been broken. It's time to push back.
Not being snarky but if a rich person owns multiple flats that she is renting out, and you force her (say by jacking up wealth tax or banning buy-to-let) to sell the majority of them, how is that not helping with house price and rent inflation? My point is that you are right the rich don’t consume that much in terms of buying eggs, but they buy a hell of a lot of assets that eventually drive inflation (the more real estate they buy, the higher house prices go, the higher lumber and copper prices go,…) Am not an economist just trying to reason using common sense so might have missed something…
A property that makes 5% of its value a year, when interest rates are paying 6%, is a bad investment.
Instead of 3-properties at $1 million (total) returning 0.05 million / year, you should sell those three properties and put $1 million into the bank and get 0.06 million/year.
That only works if the interest rates are higher than inflation.
Real estate is an excellent inflation hedge since as inflation goes up, the value of the real estate and the rent you can get for it both go up in tandem.
Another way to discourage rent seeking is to tax ownership of land more.
> That only works if the interest rates are higher than inflation.
Not necessarily. Raising interest rates lowers inflation.
So increasing interest rates is a double-whammy on housing. The increased mortgage prices lowers home values, fighting inflation _AND_ causes future profits to be discounted (relative to the risk-free bond rate).
The housing market was overheating earlier this year because low 2.5% interest rates meant that people's monthly payments were much lower than people expected. But now that we have 6% mortgage prices, the monthly mortgage price is increasing (which will eventually force housing prices down).
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This is why rising interest rates is the main tool of the Fed right now. Its not the perfect solution, but its sufficient until Congress enacts lasting change (ie: policy changes that lead to an increased supply of our luxury goods). The bank can only change interest rates so much before it becomes unreasonable.
We haven’t had runaway inflation like this in the US since the late 70s/early 80s. At that time it did indeed require interest rates higher than inflation to stop it. It took a fed funds rate of 20% to reverse 14% inflation.
The Fed want inflation to diminish (in real terms) the mountains of debt the US government and consumers incurred in the past 20 years. At the expense of the poorest people and savers (because wage inflation is much lower than the goods/services inflation, not to mention bank savings interest rates, which are laughable).
Make no mistake, the Fed are not idiots, they have been trying to introduce inflation for a long time, but initially they succeeded in asset inflation only. With the help of Covid and the war, they got their wish.
But wage inflation needs to match the goods/services inflation, because without it, borrowers will be even less able to pay their debts.
In order to really stamp out inflation, the Fed would need to raise the interest rate to 10%, essentially forcing the US to declare bankruptcy.
The Fed is hoping to introduce a mild recession, which, they hope, would reduce all kinds of inflation, without them having to raise the rates above 3.5% or so.
How do interest payments to the poor help them? They spend way more in interest expenses, heck they even pay taxes which pay the interest on government debt. Oh and finally if you buy a product from a company that borrowed money, the marginal profit of a product is necessary to cover the interest expenses of the company meaning you as a consumer pay interest in the form of higher prices on products.
The idea that the rich pay interest to themselves is laughable.
Or you do more with the current properties, such that they make more than 5% of their value per year.
Of course, the idea of land as an investment in the first place is one of the root causes (if not the root cause) of endlessly-rising cost of living, and we're long overdue to address that root cause (namely: by instituting land value taxes).
Not much room to be upset when replacing just about any tax with LVT would represent a tax savings for the vast majority of the middle class (and just about the entirety of the lower class).
The old taxes suppress LVT revenue (since non-LVT taxes suppress economic activity and thus demand for land), so adopting LVT would be further motivation to abolish non-LVT taxes.
Increasing interest rates makes buildings more expensive and land cheaper. Once you add the interest payments you didn't really gain anything unless you are buying everything with cash aka the rich.
> how is that not helping with house price and rent inflation?
Assuming they're sold to owner-occupiers who were previously renting, you've increased housing supply in that segment of the market, but you've reduced supply in the letting market, so the net effect will be zero. It won't change net demand or supply across the market as a whole.
If they were keeping those flats empty, that would be a different story.
Removing any and all gains from “real estate investment” would heavily bring down pricing.
Housing can not be seen as an investment. We can not have it be an investment, and a necessity, at the same time.
Housing can not, and should not ever produce more returns than the most basic index fund. If it does, no matter how many you build it will still be inaccessible to many.
You may argue that well, if there is more housing then there will be less money to make from investing in it. But here’s the kicker: what do top share holders do if they suspect the operations of the company they have shares in is going to make their shares worth less? They work as hard as they can to change the operations and minimize what they can do.
The same is true when housing is an investment. A property owner will act in their own best interest to reduce the ability for their investment to become worth less money.
This could mean toxic environmentalism, where you don’t actually care about the environment, but you’re using it as an argument against building houses. It could mean actively not giving permits to new constructions. It could mean actively lobbying the government to prevent certain classes of homes being built. Heck it goes all the way to actively reducing side walks, public transportation, etc.
And this is why we can’t just say “uh build more”. The “lack of supply” is a symptom. Not a cause.
The cause is simply that we accept that real estate can be an investment vehicle.
So without getting into whether we actually want that, how is that achievable?
In a sense, every house is unique, and land is certainly unique by it's location and also finite. There really are some number of acres within a particular distance of a city centre.
I guess my gut reaction is that your comment might be right (I am not sure) but strikes me as idealistic.
I think we shouldn’t let perfect be the enemy of good.
There’s a couple of things that can help here:
1. Right to build. No local government should be able to say no to you building a small multi family home or single family home on their land.
2. A graduated (by year) increase on renting income for homes. Places that had been rental residences for a few years prior to this also should be forced to stay residential for a while.
3. Empty home wealth tax. If a house has been empty for more than six months a year, it should be taxed a percentage of its fair market value based on vacancy months.
4. Mortgages returns on investment should be limited to a certain margin over inflation. Or just match inflation. More than that should be taxed.
Are these good ideas? Maybe, idk. I’m not the person that’s gonna come up with the model of how to accomplish this. But it’s potentially a starting point.
> 3. Empty home wealth tax. If a house has been empty for more than six months a year, it should be taxed a percentage of its fair market value based on vacancy months.
But why would rich people or corporations be in the market for a house if they couldn't rent them out? Especially the current above asking price cash offers from Blackrock and the like? That total number of families needing a house might be the same but the demand from entities with unlimited budgets and the ability to forecast not making their money back for ten plus years evaporates.
>Assuming they're sold to owner-occupiers who were previously renting, you've increased housing supply in that segment of the market, but you've reduced supply in the letting market, so the net effect will be zero.
Not really. The net effect would be a distribution of wealth across a broader number of people (former renters, now owners) instead of one person (landlord who is accumulating wealth by charging rents from a number of people).
But the purchaser exchanged money for property. The transaction did not alter their wealth.
I understand that we typically think of owning property as a means of increasing wealth, more so than renting. But this is only true because we let home values increase.
And it might not even be true now, if renters places their savings other investments.
Even if home prices stay flat, it would increase the would-be-renters' wealth. Their payments would not only build equity which can transfer to another purchase, but once they pay off a home, the payments are finished. That means more net-positive cash flows to their own pockets. The notion that home prices need to rise for wealth building is completely and unequivocally false.
I have a problem with the assumption that everyone can reduce their consumption. I'm confident a growing number of people are giving up on all "wants" and now not fully meeting their "needs". What are they supposed to do, die?
I like how this is a big deal (and the price of gas)...as if having a THIRTY TRILLION National Debt due to a pandemic (response botched or not, it doesn't matter)...you don't put your thumb that hard on the scale without massive downstream effects.
I find present concern with debt the future has no real obligation to pay more concerning than the actual debt. It’s a huge distraction.
What happens if the future bails on paying off dead peoples debt? Get sued by dead financiers if they legislate that dead peoples contracts are not theirs to honor?
Real resource use is a more important conversation to the species than deals made by great great great grandads a future estate try to grift on.
“Pull yourselves by your boot straps and pay off these notes the dead rich took out against old assets over valued by contemporary standards, future people!” Makes absolutely no sense.
This is why I still think we are early on with tech stock corrections. I.e current P/E ratios assume that past earnings are still accurate.
Specifically apart from rising rates I would expect this to eventually hit public company earnings in a big way and hence prompt more layoffs in public/private tech.
Last earnings season didn’t see much of an impact. We are a couple of weeks out from earnings, I wonder if this or the next quarter will be where we will see more layoffs and the tech jobs market generally tighten?
The p/e of most of the big names is still in the 20-25+ range. Way too high, and that's before earnings for the current quarter.
In a downturn, an expensive new phone will be the first thing to get cut from consumer shopping budgets. And indiscrimate marketing spend will be the first thing to be cut from business spending.
Not so sure about that phone. Most people are getting them on credit/contract, so you'll just see contract terms extended and/or made less generous to compensate for higher interest rates and inflation. People will still replace their phones whenever they can because it makes them feel good.
You can see how rapidly this has been rising since the covid deleveraging. But we're now back to trend and rates/real prices will be higher.
As long as consumers continue to lever up aggressively, earnings will be somewhat supported. But we're about to run into a brick wall with maxed out credit
Do you have any idea why the consumer credit total in this chart doubled practically overnight in March 2010? It looks like a definition change, but I couldn’t find an explanation.
In a way it is good thing. Inflation will be truly out of control is wages start to adjust to this inflationary environment. Then we will back to the 70s. The only way we tamed inflation then is with double digit interest rates that would wreck havoc in our highly leveraged economy.
What's wrong with it is that it is gone. If you want to go back to it you want to avoid runaway inflation. Wages catching up with inflation means inflation becomes self-fulfilling.
yeah, wage adjustment will bring inflation out of control. Not the tax breaks for companies, not the 2 trillion dollar stock market bailout in 2020. It's the people getting a 2 dollar wage increase thats driving the inflation. /s
There is no question the 4 trillon (not 2) money printing has been the main driver of inflation. The question is not so much whether inflation has been created, it has, and has been in the CPI index for a year now. The question now is whether we are starting the cycle of price increase => wage increase => price increase, i.e. whether we will get inflation also next year and the year after, etc. Breaking that cycle is ugly business.
Wage workers can and should demand more. When we're at the point where rising wages lead to a spiral of inflation, there's lots of other problems in the economy, so there's no point in wage workers not demanding more.
Of course it's not wage increases that's causing inflation. But once we're at a point where even wage increases lead to inflation, then we're in a really bad place.
Hopefully we can cool off before getting there. Plus the government can't really affect wages. I'm surprised nobody has suggested increasing tax rates as a way to cool the economy off, but that's political, so probably much more difficult.
That is what you would expect for CPI inflation. Bailout for companies and the rich would not increase consumption of e.g. food or gas much; newly-printed money going to consumers via whatever means would, though. Bailouts for the "rich" would just increase prices of assets, so the only CPI impact you'd expect would be in housing, maybe.
It's not like printing money and "helping people" has not been done a bunch in the past - it always works out the same way, to a different extent depending on other circumstances. To some extent, e.g. minimum wage laws could be beneficial... inflation+redistribution where the gains in wages for the poorest outstrip the resulting inflation that only affects those whose earnings didn't increase because they were already well above the new threshold, I guess? According to this article, we appear to be well beyond that point.
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[ 0.21 ms ] story [ 280 ms ] threadHow did we avoid inflation for so long during this low-rate regime? In 1870 we had the same issue - deflation in the face of money creation...the industrial revolution was happening at the same time which ate up all the money in productivity gains.
For our era, it was China. Chinese manufacturing kept things cheap even as we printed and printed. That's over too.
Get ready to be poorer, there is no alternative scenario...Americans are just going to be poorer.
The Chinese-focused East-Asian manufacturing worked because you could get mid-range labor from China/Malaysia, low-end from interior parts of China/Vietnam/Bangladesh, and high-end labor from Korea, Taiwan, and Japan.
Latin America is a good candidate because of the easy availability of raw materials and short supply lines to America. But their internal stability is a huge problem.
https://data.worldbank.org/indicator/NE.IMP.GNFS.ZS?most_rec...
Place I wanted to retire to went from 800K, which is attainable, to 2.1 million in the last two years.
Bring on the high interest rates.
(Good luck though, high interest rates kill nearly every sacred cow in politics)
That $2.1M house might go down to $1.5M, but if rates go from 6% to 10% you'll be paying more each month (assuming 20% down, borrowing over 30 years)
Worse, if prices continue to sink you'll be trapped in negative equity.
If I had to distinguish Taco bell from, say, McDonalds, I would say that Taco bell has the advantage of being filling but not putting you in a food coma.
One of it's biggest unsung heroes is the bean burrito; It avoids most questions about the meat and has been a popular option among folks who wanted to avoid meat in their diets. It's... almost healthy. Almost.
Taco Bell would be if a large corporation operated a bunch of kebab shops, but used the absolute cheapest ingredients possible (with said ingredients largely being precooked and prepackaged such that anyone with so much as basic motor skills can slap a kebab together in 15 seconds), "Europeanized" it until there's only superficial resemblance to a kebab at best, and then sold it for similarly cheap prices from drive-thru fast food restaurants.
Ah, the in-app coupons. Honestly, these are kind of a requirement nowadays if you want any fast food for a decent price.
Go look on your phone for the price of that same Domino's pizza without the coupon: for me, that same pizza would be $21.24 before sales tax. The coupon is a 62.5% discount!
When the had the "$3 off pickup" coupons for a while that stacked ($10 minimum), you could extend it to a 69.5% discount.
--
Earlier this week I coupon stacked and got a McDonald's double cheeseburger, a large diet soda, a Wendy's Crispy Chicken Sandwich (+Tomato, +Pickles) and a Wendy's large fry for a total of $2.88 across both transactions, sales tax included. 1300 calories that served as both my lunch AND dinner. I couldn't make equivalent food at home for that price, despite sale shopping.
Without coupons, and deal stacking? $9.54, which means I got a 70% discount.
If I bought all that in just one of the stores (instead of going to two, since they're next to each other), it'd likely be closer to $11.
It's basically their regular price. Unlike something like McDonald's which requires the app, precise location permissions, and limits coupon frequency.
As my personal benchmark, I use one of the more 'solid' local chains, that IMO captures most of the essence of a 'Corner Shop' pizza. i.e. the oven probably isn't wood fired, but it's going to be better ingredients and IMO better quality product than a major chain. (1)
In any case, their 2 Large 2 Topping 'coupon' has gone up from 20 to 25$ over the last year. A 25% increase, which is pretty notable to me.
I've also seen my local mexican chain raise their prices, but by a lower mark. My 6-pack of enchiladas has both gone up in price (from 10 to 11.50, a 15% increase) and is no longer quite large enough to minmax over 3 meals (2 at a time used to fill me up. not anymore.)
(1) - To give you an example of a 'corner shop' pizza, or at least what it means to me. Imagine a place where the staff is friendly but smokes weed outside the store half the time. The local residents don't really care however, because the pizza comes out even better those days. It's one of those places you don't brag about going to, yet gets all the compliments if you bring it to a party.
Dominos with coupon is now cheaper than frozen pizza around here.
I only really eat chicken, so my dog counts as an interested party with regards to meals. It doesn't take much effort (eg don't sauce her food, nothing fried, lots of rice and veggies in the rice cooker) and she is always thrilled for the variety.
I wish I could buy them one by one or two by two ... four seems like such an odd number of buns. What about families of 1,2,3 and 5.
Some places even let you buy the "restaurant" or "catering" frozen bread/buns that are pre-cooked but not fully baked. So they're risen, half-baked and frozen, ready to be "baked" from frozen by the final restaurant/caterer. That's how restaurants do it, they don't all bake or buy fresh-bread every day.
The biggest problem with hamburgers is the bread which I can't seem to get in packs of one or two. Lettuce and tomatoes you can use for any meal but if you buy 4 buns you either eat hamburger half the week or throw them away.
I've taken to using buns for sandwiches (extra buns around an egg is a decent breakfast).
So I found a local butcher who makes a 'steakhouse' grind (chuck, brisket, short ribs) for about $7/lb. Two slices of cheddar are about a buck for non-Kraft cheese, buns and condiments are about another buck. Takes me about 9 minutes to cook at home, and I have a custom, super fresh and hot burger that tastes better than anything I've every had at a restaurant. Now I do miss out on fries, but eh, chips will do as a replacement. At the end of the day, I have a burger and chips for about $5, plus leftover stuff for other sandwiches. Throw in a decent beer, and I'm still cheaper than the microbrewery. And no driving required.
Of course, I have to do the difficult part of cooking. /s
Hit up the salad bar for this stuff if your grocery store of choice has one. It's usually measured by weight, and it is much cheaper and less wasteful.
He was thinking of buying a box of lobster tails a few months back. Wholesale price was $800 for the box. He ended up passing.
Just think, wholesale prices are out of control, how can a restaurant not raise prices to stay in business?
The biggest expense for most people is housing: rents are high, buying is shockingly expensive compared to the 1980s-1990s. Raising wages, which should happen, will only drive those prices even higher unless you drastically increase the supply.
Building a massive amount of practical starter homes around every major city would go a very long way.
Just a summary ( https://www.economicsdiscussion.net/inflation/top-3-reasons-... ) "[...] top three reasons for overestimation of True Inflation by CPI. The reasons are: 1. Quality adjustment bias 2. Substitution bias 3. Introduction of new products."
it certainly doesn’t instill confidence
"Substitution Bias" will change your personal basket and your weights, but it's reflection of real inflation.
The problem isn't CPI being too high. Or too low. It's that people don't understand what it's saying, or they argue with the weight of the baskets.
(EDIT: And of course even the inflation in a very specific good - like 1 pound of uncoocked prime grade beef, will itself vary depending on geographic location, doesn't mean the average is right or wrong, when they tried to find the average person in the US military they couldn't find him - not a single person met the average once you factored in just half a dozen measurements. It doesn't mean averages are meaningless though)
For obvious, numerous reasons we are producing less stuff now than before, so we have less available to consume.
Prices must outpace wages, or we get empty shelves, or we can ration. But we MUST consume less on average.
We could talk about taking from the rich, but actually the rich don’t consume all that much in aggregate, so that doesn’t help much (wealth and income don’t matter for this purpose, only consumption).
For better or for worse, human labor and fossil fuels are the two most indefensible ingredients of our current global economic system, and the supply of both has been badly disrupted.
Obviously a lot has changed since the 70s, but why exactly aren't we having 70s stagflation or worse in the US? Do domestic oil and gas play a role?
If America were producing its own things alone, the supply shock would have pushed inflation much much higher.
9.1% isn't massive?
We are extremely privileged to be able to acquire resources even if one producer goes down.
I agree with this part of your post.
> And you mean western sanctions, not Ukraine.
But not this part. Ukraine used to export a bunch of stuff that Russia has now destroyed.
Ukraine doesn’t even list on it. They produce grain the news says… about 1/3 as much wheat as Russia.
https://www.worldatlas.com/articles/top-wheat-producing-coun...
I can go on, but to put it simply Russian (and Belarus) GDP is much higher than Ukraine GDP. It’s safe to assume they produce more and strict sanctions on them will have a greater impact. Ukraine is still producing, so some of their goods are still able to come to market. That said, yes some was destroyed / impacted I’m sure — but again, far less than sanctions or the lockdowns.
How do we know they'd stop at Ukraine?
The peace for our time. - September 1938, Chamberlain
Optimistically I’d guess we’re looking at 3-5 years to get inflation under control and that might include a recession (thats already started).
But the easiest way to guess at the future is to look at similar problems of the past.
Bank of Canada already said inflation won’t be under control for 2 more years.
What it does sound like is younger people hoping for a recession because they think it will collapse housing prices. They’re wrong, but what’s new.
2 quarters of negative GDP growth is a recession. We’ve had 1 quarter so far and lay offs are increasing.
I hope not, but with increasing rates we stand a good chance.
The highest authority on this matter is the NBER. Their definition is pasted, below. I don’t see a significant decline and so far it has not impacted employment. We’re still adding a quarter million net jobs each month.
“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
> What it does sound like is younger people hoping for a recession because they think it will collapse housing prices. They’re wrong, but what’s new.
I wish I had your crystal ball.
we had strong unions back then which would demand double-digit COLA raises in salary producing a wage-price spiral.
given how people could actually afford homes back then, though, i don't think this was a particularly bad thing.
what we have now contains all the inflation in the system to the upper class and asset bubbles.
we need either to have the cost of housing deflate or the wages paid to inflate. it will be less painful to inflate wages. this isn't what we're going to do though.
Are you sure? Numbers I looked at suggested both global and US manufacturing output is up both in terms of output and percent of GDP. So consumption could rise.
https://www.macrotrends.net/countries/WLD/world/manufacturin...
For example:
https://fred.stlouisfed.org/series/DAUPSA
The only way that prices will fall is if demand wanes, or supply increases.
No one said people starving is great for the economy. It’s a statement of fact that inflation will not abate unless demand falls or supply increases. It’s pretty hard to increase supply right now.
This is certainly what traditional economics says (they consume, rather than invest) because it's what rich people want us to think, but it doesn't hold out.
For one thing, their private jets and charter flights eat up a lot of fuel. Their lifestyles aren't free.
Second, attribution is a hard problem. When all the poor people drive to work in offices in places chosen by rich people, to create surplus value for the rich, who is consuming all that gasoline? Is it the rich, who benefit from this economic system and the poor being forced to participate? Or is the poor, who are the ones directly buying and using the fuel? Hard to say; at the individual level, attribution is probably impossible.
Third, the whole notion of "poors consume; the rich invest" is only true in proportionate terms. Sure, the billionaires don't directly consume 100,000 times as much as average people--simply because that would be ridiculous. No one can eat 100,000 hamburgers for lunch. But they do consume 100-1000 times more than average people--fuel is a big one, and those 20,000-SF houses aren't cheap to maintain--and this adds up. Their footprint on resources is bad enough; their overuse of land is destructive--this kind of private wealth is a catastrophic misallocation of resources.
Finally, what tends to happen with the rich is that they don't put their money into direct consumption (because, again, there's no hedonic payoff to having 100,000 hamburgers for lunch; 99,995+ will go to waste) so much as they use what they have to further secure personal and familial advantages, both economic and political. That's what this investment is: the configuration of society by the last round's winners to ensure they'll win the next round. This has resulted in an economic system that benefits them and keeps the middle classes comfortable enough to survive but--you're right on this--is unsustainable.
You're absolutely correct to say that "hit the rich" is far from sufficient here. We in the middle class are going to need to sacrifice. Thing is, no one's going to sacrifice anything with the current upper class in charge. Would you give up anything for these people and the society they've built? I sure wouldn't. You can't ask people in the middle classes to eat less meat and fly less often if you're taking a private jet to Davos. Neoliberalism has a lot of problems, but a big one is that these WEF people have literally none of the moral authority on which they seem to believe they operate.
[1] https://www.bloomberg.com/graphics/2022-wealth-carbon-emissi...
No matter what the economic system, somehow you need to convince someone to work in the sewer and operate complex orgs of thousands of people.
One option is to use a gun - you point it at people you don’t like and make them sewer workers.
Another is to arbitrarily hire and have no consequences. This leads to incompetence and mismanagement, as often happens in government everywhere and in socialist / communist nations that nationalize industries and staff them with political hires.
In capitalist societies we give more stuff to people who do hard jobs and / or are highly effective. This is the carrot - work a high stress or shitty job and get more stuff. The stick for failure is you get less stuff, but at least you aren’t shot in the head as they do in other systems.
You can argue until you’re blue in the face about neolibs / the rich / whatever. Doesn’t change the fact that inequality is a requirement for society to function if you expect someone to work in shit-filled holes underground all day while others pontificate about philosophy.
I think you realized that you were on shaky ground and stuck "effective" in there, but I'm going to call you on that one: please, explain to me how the strong correlation between shitty jobs and shitty pay is entirely about leveraged value creation and not at all about social status and Rules for Rulers?
Please, if you don’t like America then don’t come here, or if you are here just leave. However a lot of supposed socialist utopias in Europe have effectively zero immigration that allows you to be a full citizen on their pension rolls. Just see how hard it is to immigrate to the Netherlands or Norway.
That won't stop me from trying.
It's not about how they spend money, it's about how they "make" money. It's about their passive income.
The economy is a machine that squeezes workers: it pays as little as possible while extracting as much value as possible. The juice that results from the squeeze then gets distributed according to who owns the financial assets. One person's passive income is another person's obligation to pay up while receiving no actual work in return. The true excess of the rich is the juice from the squeeze -- getting paid for being rich -- not in the particulars of how they spend it.
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Ok, so that framing was hyper aggressive, more than I think is fair, because there is another side to this story: as a consumer, you get to put the squeeze on producers and make them compete, investment carries risk, consumer excess exists too, etc etc. You know the story, you've heard it a hundred times before. However, I'd wager you have heard the "how capitalism works for you" side at least 10x as often as the "how capitalism works against you" side, which should be suspicious, because both are true and both are highly relevant to your life. Also, if you felt that the paragraph above was hyper aggressive, you should also feel that the traditional narrative is hyper aggressive, because they are mirror copies of each other.
This hints at the real issue which is that our policies and culture have been hijacked to aggressively favor capital at every turn. The inevitable result is "the wedge" graph, US economy expands 5x while 80% of people see a regression in wealth. The rising tide does not float all boats. Actually, it sinks most of them. Even the meager promises of the "rising tide" social contract have been broken. It's time to push back.
A property that makes 5% of its value a year, when interest rates are paying 6%, is a bad investment.
Instead of 3-properties at $1 million (total) returning 0.05 million / year, you should sell those three properties and put $1 million into the bank and get 0.06 million/year.
Real estate is an excellent inflation hedge since as inflation goes up, the value of the real estate and the rent you can get for it both go up in tandem.
Another way to discourage rent seeking is to tax ownership of land more.
Not necessarily. Raising interest rates lowers inflation.
So increasing interest rates is a double-whammy on housing. The increased mortgage prices lowers home values, fighting inflation _AND_ causes future profits to be discounted (relative to the risk-free bond rate).
The housing market was overheating earlier this year because low 2.5% interest rates meant that people's monthly payments were much lower than people expected. But now that we have 6% mortgage prices, the monthly mortgage price is increasing (which will eventually force housing prices down).
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This is why rising interest rates is the main tool of the Fed right now. Its not the perfect solution, but its sufficient until Congress enacts lasting change (ie: policy changes that lead to an increased supply of our luxury goods). The bank can only change interest rates so much before it becomes unreasonable.
Going from 1% rates to 2% is in many ways a bigger change than say a 15% to 16% increase.
Make no mistake, the Fed are not idiots, they have been trying to introduce inflation for a long time, but initially they succeeded in asset inflation only. With the help of Covid and the war, they got their wish.
But wage inflation needs to match the goods/services inflation, because without it, borrowers will be even less able to pay their debts.
In order to really stamp out inflation, the Fed would need to raise the interest rate to 10%, essentially forcing the US to declare bankruptcy.
The Fed is hoping to introduce a mild recession, which, they hope, would reduce all kinds of inflation, without them having to raise the rates above 3.5% or so.
The idea that the rich pay interest to themselves is laughable.
Of course, the idea of land as an investment in the first place is one of the root causes (if not the root cause) of endlessly-rising cost of living, and we're long overdue to address that root cause (namely: by instituting land value taxes).
"My political opponent is attacking the middle class and their investments!"
Assuming they're sold to owner-occupiers who were previously renting, you've increased housing supply in that segment of the market, but you've reduced supply in the letting market, so the net effect will be zero. It won't change net demand or supply across the market as a whole.
If they were keeping those flats empty, that would be a different story.
Housing can not be seen as an investment. We can not have it be an investment, and a necessity, at the same time.
Housing can not, and should not ever produce more returns than the most basic index fund. If it does, no matter how many you build it will still be inaccessible to many.
You may argue that well, if there is more housing then there will be less money to make from investing in it. But here’s the kicker: what do top share holders do if they suspect the operations of the company they have shares in is going to make their shares worth less? They work as hard as they can to change the operations and minimize what they can do.
The same is true when housing is an investment. A property owner will act in their own best interest to reduce the ability for their investment to become worth less money.
This could mean toxic environmentalism, where you don’t actually care about the environment, but you’re using it as an argument against building houses. It could mean actively not giving permits to new constructions. It could mean actively lobbying the government to prevent certain classes of homes being built. Heck it goes all the way to actively reducing side walks, public transportation, etc.
And this is why we can’t just say “uh build more”. The “lack of supply” is a symptom. Not a cause.
The cause is simply that we accept that real estate can be an investment vehicle.
In a sense, every house is unique, and land is certainly unique by it's location and also finite. There really are some number of acres within a particular distance of a city centre.
I guess my gut reaction is that your comment might be right (I am not sure) but strikes me as idealistic.
There’s a couple of things that can help here:
1. Right to build. No local government should be able to say no to you building a small multi family home or single family home on their land.
2. A graduated (by year) increase on renting income for homes. Places that had been rental residences for a few years prior to this also should be forced to stay residential for a while.
3. Empty home wealth tax. If a house has been empty for more than six months a year, it should be taxed a percentage of its fair market value based on vacancy months.
4. Mortgages returns on investment should be limited to a certain margin over inflation. Or just match inflation. More than that should be taxed.
Are these good ideas? Maybe, idk. I’m not the person that’s gonna come up with the model of how to accomplish this. But it’s potentially a starting point.
How would this work in practice and enforced?
Not really. The net effect would be a distribution of wealth across a broader number of people (former renters, now owners) instead of one person (landlord who is accumulating wealth by charging rents from a number of people).
I understand that we typically think of owning property as a means of increasing wealth, more so than renting. But this is only true because we let home values increase.
And it might not even be true now, if renters places their savings other investments.
Property taxes and maintenance costs continue forever.
See the study linked in that article: https://www.theguardian.com/environment/2021/nov/05/carbon-t...
That's not taking money from the rich, it's funding the basis for society and can pay into debt releasing obligations.
What's fundamentally flawed at the central bank is it's one way street. Congress needs to act.
that's a bit misleading considering that the debt was already 23 trillion before the pandemic.
33% of US debt happened due to pandemic response; was that well spent?
What happens if the future bails on paying off dead peoples debt? Get sued by dead financiers if they legislate that dead peoples contracts are not theirs to honor?
Real resource use is a more important conversation to the species than deals made by great great great grandads a future estate try to grift on.
“Pull yourselves by your boot straps and pay off these notes the dead rich took out against old assets over valued by contemporary standards, future people!” Makes absolutely no sense.
Specifically apart from rising rates I would expect this to eventually hit public company earnings in a big way and hence prompt more layoffs in public/private tech.
Last earnings season didn’t see much of an impact. We are a couple of weeks out from earnings, I wonder if this or the next quarter will be where we will see more layoffs and the tech jobs market generally tighten?
In a downturn, an expensive new phone will be the first thing to get cut from consumer shopping budgets. And indiscrimate marketing spend will be the first thing to be cut from business spending.
It's taken a lot longer to play out than I expected, but you can get a decent sense of consumer spending via revolving credit e.g. credit cards.
https://fred.stlouisfed.org/series/CCLACBW027SBOG
You can see how rapidly this has been rising since the covid deleveraging. But we're now back to trend and rates/real prices will be higher.
As long as consumers continue to lever up aggressively, earnings will be somewhat supported. But we're about to run into a brick wall with maxed out credit
This seems to be more of slow role out in stages. I could totally see this taking another quarter or two before it hits earnings in a big way.
If you were below that, land prices in many popular and economically booming area were increasing out of your reach.
What should wage workers do except demand more at the bottom?
If we don't demand higher wages the the printed dollars just end up among the really rich.
Hopefully we can cool off before getting there. Plus the government can't really affect wages. I'm surprised nobody has suggested increasing tax rates as a way to cool the economy off, but that's political, so probably much more difficult.
Why is that bad? Given the asset inflation it is only anticipated wages catch up or assets crash.
It's not like printing money and "helping people" has not been done a bunch in the past - it always works out the same way, to a different extent depending on other circumstances. To some extent, e.g. minimum wage laws could be beneficial... inflation+redistribution where the gains in wages for the poorest outstrip the resulting inflation that only affects those whose earnings didn't increase because they were already well above the new threshold, I guess? According to this article, we appear to be well beyond that point.