It’s mostly a demand shock, not a supply shock, and it’s everywhere(bridgewater.com) |
It’s mostly a demand shock, not a supply shock, and it’s everywhere(bridgewater.com) |
> Here's 10 years of the relationship between our consumption of goods and our consumption of services. It explains a lot about why we're experiencing bottlenecks and disruptions. We were simply not prepared for the massive uptick in goods consumption.
* https://twitter.com/TBPInvictus/status/1456683999657615364
When people couldn't go out and do stuff (services) they started buying stuff (goods), and the supply chain couldn't handle the sudden surge… so now we have supply problems.
The supply problems are often 'subtle' as well. For example, a few months ago softwood lumber in the US hit a peak of $1733/lot, and now it's down to 'only' about $600—which is still 50% higher than it historically ever was before.
However there is a 'glut' in the supply chain because current inventories can't be shipped because… there is a shortage of truss plates:
* https://en.wikipedia.org/wiki/Truss_connector_plate
Floor trusses can't be built, so even though you've built the first floor walls you can't go to the second because the floor framing—built using trusses—can't be laid down, so houses can't be finished. Further details about the current (Nov 2021) lumber situation on the most recent Odd Lots podcast:
* https://player.fm/series/series-1504378/stinson-dean-on-the-...
* https://www.bloomberg.com/news/articles/2021-11-08/transcrip...
* https://www.bloomberg.com/news/articles/2021-11-08/how-a-2-m...
Similarly even if you built most of the house, you can't legally occupy it unless there's running water—and there's a shortage of faucets:
* https://player.fm/series/series-1504378/the-bathtub-episode-...
So the demand and supply shocks dovetail 'nicely'.
Worth checking out Bloomberg's Odd Lots podcast as they've done a number of episodes on the supply chain over the last year. There are ones specifically focusing on (US) ports, rail roads, and trucking.
COVID's impacts have not been proportional across the socio-economic spectrum, nor has the benefit of the economic stimulus.
Meanwhile, the public facilities used by both families such as parks were underfunded with the loss of tax revenue during the pandemic (and often before). Charitable giving is an opportunity to improve them without raising taxes. Without those inclusive civic institutions, those with means can go to private or for profit recreation and cultural options. Those who don't have nothing.
It is disheartening to hear that emergency public assistance would be used as a rationale to "obviate the need charitable contributions".
Our competitors are doing the same.
At aggregate it may look like a “demand shock” due to too loose monetary policies but maybe it is not really what is going on.
If you are right then this is a temporary shock and will subside quickly. If the article is right then this is a systemic problem that will persist for years to come. I suppose we'll see. One indicator to watch is services demand because I wouldn't have thought that would suffer from a 'grab the toilet paper while you can' effect.
I think this is completely of touch with the realities faced by different slices of society.
I am a web developer who was working from home for many years before the pandemic. My experience is not even remotely similar to most people in the US.
Edit: this article is written by a hedge fund. So they definitely live in their own little world too.
I don't understand this calculation either. It does not fit my own experience, or anyone else I know.
Money supply goes up. Provided that gets into consumer’s hands, demand goes up. Depending on the velocity of money, the slack in the economy is quickly eaten up. In a recession there’s more slack. Slack is things like unemployed workers, warehouse stocks, easily accessible resources.
Once the slack is gone, this causes prices to rise.
None of this requires consumers to change their habits. It’s just a slight marginal increase in spending by _a vast number of people_, which has transitive spending effects. This is Keynesian economics 101. The only thing that is surprising is the speed at which this has happened.
The proximate cause is printing money. A more interesting point: during the Obama administration there was a collective feeling that they had not printed enough cash during the 2008 crisis. I think what we’re seeing is an over-correction for that now in the size of stimulus packages. Very much a product of Biden being there in 2008 and now. It’s well intentioned but the mistake is to equate the two events; there was little risk in 2008 of over stimulating the economy, because the recession damped velocity and capital accounts and liquidity requirements ate up the new money supply.
World leaders have made a basic error and high inflation is the inevitable consequence. I’m not knowledgable enough to know what the level of inflation we can expect will be, but 5% feels nowhere near the peak. The real danger now is that we get into a wage-price inflationary spiral, which we’re beginning to see signs of. That spiral is incredibly difficult to stop, as the U.K. discovered in the 80s when Thatcher and Lawson threw the kitchen sink at it and it still took years to have any effect.
This to me sounds like DNC talking points aimed at absolving the administration from the clusterfuck it single handedly created. _And_ they're thinking of shutting down _another_ pipeline [1]. Guess what that will do to cost of goods, consumer confidence, and purchase volume, and who will absorb the increased costs?
The situation with ports is what happens when you appoint a mayor of a town nobody ever heard of with no experience as a transportation secretary.
[1] https://nypost.com/2021/11/08/biden-might-close-michigan-pip...
Turkey here is retailing for $1.51/lb grocery brand, $1.94/lb here for brand name with curbside pickup. Slightly higher than normal but nowhere near $75 for a turkey.
It's a sign of weakness.
Damage to the frontal lobe causes what Neal Stephenson referred to as "poor impulse control". I think the rise in violent incidents on airplanes is linked to this.
Additionally, poor impulse control leads to impulsive spending and purchasing behavior. Compounded by lockdowns and government checks, the situation is that consumers have upped their consumption way beyond their means; but some of this I suspect is neurological as opposed to psychological.
I think wild consumer demand just happens to be right now the most visible part of an iceberg of long lasting brain damage caused by covid, that our society is about to crash into.
Yeah there’s more money floating around, so perhaps more people want to spend it, but why? Most people aren’t getting materially more stuff or even need that much more stuff, consumption’s already god damn conspicuous.
Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion.
To me, this still looks like the bullwhip effect, which is expected to have an outsized effect on demand over at least a year or two.
Buyers, who got used to “just in time” shipping, got spooked by shipping delays and shortages from their suppliers, because of supply demand imbalances during shutdowns, and as a response they all put in orders for 2 to 3 times the amount they usually buy from their suppliers with the intent of rebuilding domestic stock so they don’t miss out on sales.
All of a sudden, aggregate demand explodes.
Shocking.
People used to spent their money in restaurants, bars, cinemas, theaters, parties, festivals, massages, hairdressers, and a bunch of other services. If you add lockdowns, many things happen:
* people have leftover money, that they instead spend on "things"... and since they're used to using less services, this is also true for some time after the lockdowns
* If you're stuck at home, you'll buy stuff that makes that nice... a better tv, a game console,...
* Some lockdown policies directly affect your 'need for stuff' - school from home? Kids need their own PCs, you need to buy a scanner and a printer for them,...
* People working from home also have more free time, and decide to do the long delayed house work and projects - so people buy more construction materials (also people want houses outside of cities, because it's nicer to be there during lockdowns), so prices of that go up too
* and last but not least, manufacturers fuck up their orders, don't have stock buffers, and fail horribly
https://fred.stlouisfed.org/graph/?g=ysLo
Typical growth in household checkable deposits/currency/savings deposits was around $500 billion/year during the mid-2010's. last year it was... $2.6 trillion
I think this was the root cause of the toilet paper shortage. People who normally spend a large portion of the day at the office were now spending that time at home. There was a popular viral video at the time of a man driving around on a forklift in a warehouse full of toilet paper laughing about the shortage, but it was all commercial toilet paper not what you would use at home. Anecdotally I noticed a correlation between the level of traffic on the freeway and the amount of toilet paper on store shelves. When the freeways were empty the shelves were bare and as traffic started picking back up the shelves started replenishing.
We built a highly efficient economy for a set of behaviors. A shock happened that caused a lot people to change their behaviors (probably for a long time, since they've had 2 years of 'practice').
Our economy, which was built for those old behaviors (living in cities, riding public transit, eating at restaurants, travelling internationally, etc.) is doing a bad job of adapting to new behaviors (Living decentrally, driving more, ordering out more, travelling locally. etc.) because we used to think 'People don't change very fast, we can build a just-in-time economy.'
But here's the thing about cycles, soon things will adapt to those new baselines.
Companies will carry more inventory. (until a new generation of FP&A underlings forgets what a pandemic is)
Not enough steel to make enough cars? Here's my amazing ' Airbnb for cars' startup (Hey Sand Hill, did you know, dollar for dollar, they are the most underutilized asset in the world?).
Natural gas extremely expensive? Let me introduce you to renewables, which btw are getting better and better every year.
It may be a painful few years to navigate that transition, and Bridgewater's (weak) point here is that 'hey, consumers are changing behaviors' and nothing more, which to me is a great reminder why this is happening: https://www.bloomberg.com/news/articles/2021-09-02/dalio-s-h...
Shutting down a natural gas pipeline that people depend upon just before winter, and then lecturing them about solar panels is not a good look. Artificially increasing the price of natural gas causes famines, it causes food and fertilizer to be more expensive, and it makes it hard for people to heat their homes.
But one thing it doesn't do is increase reliable renewable energy sources. Solar is not a replacement for home heating oil during the Michigan winters. And renewables do not spring instantly into existence out of suffering. Another thing it doesn't do is help the air, because instead of this pipeline, we will need to run 5000 trucks per day from Canada to the Midwest to deliver that natural gas in time for winter. So it's a good thing we don't have a shortage of truck drivers or any supply chain issues.
This idea that we should be punishing end users who need to heat their homes and buy fertilizer instead of actually deploying reliable alternatives is a form of scolding eco-sadism. It may be fine for you to absorb an increase in home heating oil prices, but other people really suffer. It's pure mismanagement and very much has a "let them eat cake" vibe.
> It may be a painful few years to navigate that transition
The pain inflicted on households in the midwest will be returned with interest in the next election. The next time you wonder why it's 2050 and the US hasn't raised any gas taxes or instituted carbon credits, or really done much to reduce CO2 emissions, then remember that to pass a green agenda you need to win battleground states like Michigan, and then remember back to this moment and the kinds of finger wagging lectures that were being delivered all over the country to people worried about how they will heat their homes in the winter.
I have been astonished at how well the world has responded to the shock. Our first world economies seem to be amazingly resilient (although perhaps I am biased by being in New Zealand so I am unaware of what is going on elsewhere).
It seems to me that just-in-time is helping us, and capitalist price signals are working.
So far I personally haven't lacked anything important (albeit, I live in a rich county. I did have to wait a month for an iPad).
Sure there is plenty of fail, but I'm not sure the obvious "better" answers would actually improve anything.
It is easy to criticise given perfect hindsight, and easy to see from my armchair what should have been done.
I do a lot of split tests (a/b testing). People always want to know why a treatment worked. I believe this is human nature.
However, the answer to any specific situation is generally unknowable. I may have only changed one color and gotten way different results, but there could be a billion or a trillion situation dependent factors that cause the situation to happen. It is pure chaos.
But our brains latch onto our cognitive biases to scaffold a reason, such as “because people find blue more reassuring than red.”
This is not generalizable, but more importantly: it probably doesn’t matter in order to resolve the decision that was the reason for the test.
Since then, I have accepted that seeking the “why” is generally a fools errand, unless you are doing pure science in a controlled, closed-input system.
That’s the beauty of not asking why. It’s a competitive advantage.
Asking "why" is the act of cognition. Discerning structure, compression, building a model (science). Then applying that model to new territory (ie engineering), to achieve better gains than undirected walk. Eschewing this is basically nihilism, and it's far too common these days.
For example, the rush on toilet paper triggered more production, which reduced pulp supplies, which constrained golf cart supply.
Why? Seats are made from particleboard, made from pulp. Plus, golf courses bought more carts than usual due to lockdown restrictions.
It seems plausible that golf cart manufacturers aren't ready to handle extremely spiky demand. Also, that the toilet paper explanation begins as a joke or a guess, and takes hold because everyone likes it as a story.
Covid came, the economy died. No travel, restaurants, theaters etc, plus work clothes, beauty products ... Now covid is less of a problem every day, and those things are coming back ... we have a huge demand shock.
I suspect that stimulus checks may have also played a role. Those who fall below the poverty line finally found themselves with a little disposable income to spend on basic everyday things, thus driving up demand. Stimulus check detractors prefer to spin this as inflation but you only get that with a generalized increase in demand for basic consumer goods and services.
My personal theory is that this effect is driven mainly by poor people finally getting a break. Those who were already well-off tend to either not change their consumer patterns with small changes in disposable income, or tend to spend it with one-off expenses such as luxury goods and services, or even dump it in risky investments like crypto as we've been seeing in the ongoing bull run.
US money supply M0 in late 2019 was low around 3.5 trillion.
Today it's around 6.4 trillion. This doesn't equate to 100% inflation, but it certainly equates to affording jet skis.
M2 money supply is sitting around 21 trillion and ought to be more around 16 trillion. This is the equivalent to 31% locked in, happening within a few years inflation. Though looking deeper than this, easily 40% inflation locked in.
You are incentivized to buy a jetski even on cheap debt because as this inflation erases the debt. The asset even with depreciation will end up being more expensive than you bought it selling used.
In terms of 'wealth expansion' it's sitting around 400% right now.
Overall, I believe the Bridgewater story to be more correct.
The article shows global lows for raw materials, but production for China is up 20% and exports are 40% higher.
I can't find any reference to retail inventories in the article, but I think some of the stock could be found there - though I imagine that a lot of it could simply be stuck in transit.
I think you and OP agrees - the parent post tries to answer the why of the situation, which the article doesn't spend much/any time on
Thats equivalent to a population boom.
In our case, with the real estate market so hot, it makes sense to upgrade. Selling and buying a house has a stamp duty here of $50k on a $1m house, meaning it's fairly easy to justify $50k on internal renovations (updating bathrooms, flooring, etc) rather than upping and moving.
“Household balance sheets are now in a materially better state than they were pre-pandemic, as MP3 created a significant amount of wealth, pushing up the value of assets like equities, housing, cryptocurrencies, and so on. These gains have been broad-based across the economy, not just in the top decile or quantile. Ongoing stimulative financial conditions have further lowered debt service costs, and incomes have also benefited as economies have reopened. In short, households are wealthy, flush with cash, and ready to spend—setting the stage for a lasting, self-reinforcing surge in demand.”This isn't meant to be a conservative talking piece, a lot of people just reacted to the lack of consequences and futility of their prior aspirations.
Also, Congress acted haphazardly and sent some forms of stimulus to anyone with an AGI below like $75k. AGI is influenced by how many deductions you make, not "income", as widely reported. Many people that were not cash poor but had or rolled forward deductions had $0 or negative AGI and automatically received stimulus payments.
And we all know how the Paycheck Protection Program went. That was an anything goes lottery.
It all are factors. I'm going to go with Ray Dalio on the weighting of the factors. Disruptions, readjusted priorities by individuals, and capital misallocations from what people want to do and how the capital entered the market.
Consumers base purchasing decisions on their monthly outlays. When interest rates go down, they can afford more in payments, so they increase their consumption until their expenses match what they can afford. A good example here is housing.
The US and many EU states provided an under-appreciated amount of stimulus during the COVID-19 lockdowns. Even when this wasn't given directly to citizens, as it was in the US, it still trickled down from businesses to labor through steady wages. It also kept the wheels of the economy greased by keeping businesses out of bankruptcy, so when the lockdowns ended, the unemployed could return to work.
The steady wages piece here is key, because the lockdowns led to a significant reduction in daily expenses. So, i.e., if you had 5K in monthly expenses that were matched by 5K in income, for a non-negligible amount of time, you had 5K in income going against 3K in expenses. Even without direct stimulus payments, this led to a significant increase in average savings.
Now that the lockdowns are over, consumers - who now have money in the bank - also happen to have access to extraordinarily low interest rates (too much money chasing too few investment opportunities). Because of post-COVID structural issues, there is also an increase in the demand for labor, so wages are also increasing. And there's the much touted structural part of all of this.
We've never, ever (at least, from the early 20th century), seen as large of a reduction in global peacetime economic activity as we did in early-mid 2020. The closest example out there is the end of WW2. We've also never seen global economic activity drop, and then rebound, in such a short period of time.
> Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion.
Getting back to your post, debt allows leverage. Consumers now have either lower monthly expenses (if they used their savings to pay off debt) or they have more money in the bank to use as a down payment. To use your example of a jet ski, a Yamaha EX at $7,200 USD can be purchased with 1K down and a 60 month repayment plan. The monthly payments will be $118 USD at a 5.2% (high) interest rate. So, the average American consumer, using only government-provided stimulus checks (3.2K per person), can afford the down payment along with almost two years of monthly payments for a jet ski before they have to start paying from their income.
Can they afford the jet ski outright? No, but consumer purchases are based on short term impulses, and the US stimulus checks, along with easy access to low interest debt, certainly pushes the equation towards consumption.
Yeah, no. A lot of it just went into stock buybacks and other navel gazing.
Also LEAN is the practice of globally optimizing a system, with the less known drawback of making it globally fragile. We have seen this before when supply chains are disrupted, like the flooding in 2011 disrupting HHD's. https://spectrum.ieee.org/the-lessons-of-thailands-flood
Of course they did, but indirectly. By propping up the economy by keeping an artificial demand for treasuries, it caused a securities bubble.
I bought a bigger house, and so did plenty of my friends, and so did everyone else my real estate agent was working with, which meant I needed a new couch, bed, desk, curtains, speakers, tv, etc.
All of the move up buyers who moved some of their money from the stock market into housing likely also spent money buying more 'stuff' for the bigger space.
Even if they don't spend the money, it still drives demand. That's because investment also drives demand. How do you get a return on investment? If you invest in a company, it will expand. Even if you put money into property that will drive renovations and new construction. All profits from investment come from profitable economic activities somewhere down the chain.
By the way, if we DON’T see sustained inflation from this level of stimulus, that should raise eyebrows and we should really question the role of CBs and efficacy of monetary policies.
That's a fairly rich-world centric view of things. I suspect the majority of humanity hasn't reached the point where "they don't need much more stuff".
Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good.
If wage growth squeezes profits, then that's also good from a wealth inequality point of view.
Gun to head? I think it seems that 'inflation' is not really inflation - but a kind of profit tax that seems to be being priced in to charge more for things because everyone else is doing it. A lot of debt was paid down with the stimulus, rents/real estate are frickin skyrocketing, so it's difficult for me to believe that there is a huge surge of demand because everyone is suddenly flush.
As for the the supply chain issues / trade war / materials shortage - again, that doesn't seem to be inflationary or a demand shock, but a temporal supply-side issue not being able to keep up with regular demand as things reboot.
[0] https://www.nytimes.com/2021/10/01/upshot/inflation-economy-...
Also, economic growth depends on the ability to remove bottlenecks and improve productivity. Yes, there is always another bottleneck. But idea that removing one bottleneck is pointless because there will be another one seems like giving up on growth?
In particular, it seems unlikely that there is no way to build more housing.
One point that I don't think is made clear. Because this problem is totally artificial, it isn't clear how you solve it. Clearly, prices are going to have to increase substantially to choke off demand. But even once you do that, there is a question in some industries of whether supply can increase at all. Some big industrials are trading on mid-single digit P/E ratios, they just can't get money (most are actually being incentivized to return this, repeat that: shortage of almost everything, the market is telling them...reduce supply urgently). There is a flood of money for "risk-free" investments and tech (read: unprofitable, never going to be profitable but has value because you might be able to convince someone that you will be profitable...eventually), everyone else is being starved to death. It is quite terrifying because the govt has managed to debauch almost every price in the economy. Nothing is working.
https://www.portoflosangeles.org/business/statistics/facts-a...
Check the graphic here - https://www.bbc.com/news/58926842
Who was asked, and who did the asking to arrive at "most say"?
https://hbr.org/2021/09/who-is-driving-the-great-resignation
>Employees between 30 and 45 years old have had the greatest increase in resignation rates, with an average increase of more than 20% between 2020 and 2021.
>Interestingly, resignation rates also fell for those in the 60 to 70 age group
1) if it's only a demand shock and production of goods is sky high, why are all the goods missing? Apple missed its projections and blamed it on supply issues. Did e.g. TSMC crank the production up, but failed to deliver for Apple? Hard to imagine. So if there's enough goods it implies that e.g. Apple didn't sell as much as expected, but this goes against the argument that there is so much stimulus money.
2) speaking of stimulus, despite the claim that it's a demand shock, the article makes this claim early on: The MP3 response we saw in response to the pandemic more than made up for the incomes lost to widespread shutdowns without making up for the supply that those incomes had been producing.
so which is it? supply or demand shock?
This isn't true in the UK, yet the article mentions a lack of truck drivers here - that's more likely to be due to Brexit and then not wanting to come back after being treated badly last winter.
This is generally true in most countries: although the exact mechanism was different, people ended up with more discretionary income and fewer services to spend it on, and so demanded more goods.
Post something, or don't. Don't put up a blocking modal to force me to read some terms & conditions before reading the actual content.
The only problem is, the lawyers who interpret things the US government says, are requiring them to show it.
Unfortunately, the government has decided you're too stupid to critically read words written by an investment firm. Your elected representatives believe you need to be reminded that investment firms might be writing bullshit to try and take your money.
The only problem is, if you're too stupid to use critical thinking when reading words on the internet, you're also not likely to be the type of person who would read a terms & conditions.
Welcome to exciting world of well intentioned but poorly thought-out legislation with hilariously irrational unintended consequences.
For those who push for a universal basic income where large groups of people do not work ... do not help produce the supply only push up the demand. Why do you think UBI is still a good idea and you are perfectly fine with how things are now vs. how they were?
*Please note i want workers to be paid more then fairly and when i go out i tip up to 30%, as well happily pay $60 to $100 for dinner at Applebees (or similar places) for a friend and or a date and myself.
So the moment a graduated price hike was introduced for container parking (just very recently) one of the major US vendors conveniently found warehouse space for 5000 of their containers sitting empty on the LA docks. Think about this like using airport parking for your car as opposed to metered parking on a street in front of your house (everyone's house) and until recently the airport parking was substantially less per day.
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I would have loved for the article to focus more on housing, because I see that topic frequently come up on HN from people on the west specific, especially San Fransisco, and they always get this subject incredibly wrong to fit their localized price/inventory dynamics in way that falsely equates to buying candy bars or fuel.
Here is a deeper exploration of housing using data: https://news.ycombinator.com/item?id=28974793
In short, supply trails demand. In high growth markets, which is not San Fransisco, the frequency of demand for a fixed asset versus the speed of supply is almost solely responsible for shaping the product definition.
Are you just making stuff up to argue about??
But the minute the government distributes this newly printed money directly to the general public (through covid subsidies), inflation in ordinary goods follows.
I know the Fed pretends it doesn’t finance directly the budget deficit but in practice it does, and the amount of QE pretty much tracks the deficits during covid.
The email newsletter upsell, however...
Does it really require much more than that to break the whole system down? You could have what was once a highly parallel system with tons of transport bandwidth brought to its knees and effectively serialized if not completely deadlocked by just overflowing your storage capacity enough to fill all the transport stuck in queues and other forms of holding patterns.
Thought exercise:
You have two warehouses surrounded with tons of loading/unloading docks, plenty of bandwidth capacity, but they're both full inside. You have 20 trucks available, and they too are all full of goods, 10 parked at the docks of one warehouse, the other 10 parked at the other warehouse. But nothing is happening, because all the trucks are full and waiting to unload, and all the warehouses are full.
So you introduce a 21st truck that's empty, and it shows up at one warehouse, loads up, and moves the stuff to the other where it needs to go. What happens? Did you fix the problem? Barely; you've opened up 1 truck worth of transport capacity. Despite having all this potential parallelism and idling trucks at concurrent docks, you will still be stuck with just a single truck moving around making glacial progress at any given moment. At least until enough goods exit this closed system where only the warehouses are storing and the trucks are all transporting again, which requires preserving sufficient headroom at the warehouses to ensure any docked, fully loaded truck can unload immediately.
It's a vastly simplified example, but I wouldn't be surprised if something along those lines has occurred where the transport has become storage because there's been too much stuff pumped into the system for the available holding capacity.
It's like trying to rearrange your overfull apartment when there's zero floor space available, you can't move the bed because it's wedged between the couch and the table. You need to take stuff out of the space so you can actually move things around.
Tight labor market; demand for goods outstripping supply, driving up prices; too much money chasing too few goods: it's all there.
Even a single adult with no kids would have gotten $3,200 so far.
I mean, damn, how much is rent in your city?
https://www.pgpf.org/blog/2021/03/what-to-know-about-all-thr...
It’s the near zero interest rate policy, the literally illegal purchasing of mortgage and corporate bonds by the fed and so much more that is flushing the entire economy with trillions of dollars.
The reality is that the explosive demand, alongside with a lagging supply can lead to an inflationary pressure not seen since the 1970s. At least in the 70s the information technology revolution was just around the corner. Right now, it feels like the supply issue cannot be remedied or solved because of heavy regulations and a stagnant productivity.
"Hedge funds guy" are extremely partisan, in that they will fight hard to prevent any kind of legislative or other systemic change that would threaten their rent-seeking. They invariably favor the status quo and/or anything that increases their ability to profit, regardless of other consequences it may have.
I'm not going to claim that Krugman isn't "partisan" (although I think using this term to describe him undermines the meaning of the term), but I'm also not willing to accept that "hedge fund guys" are not.
I described Sahm and Krugman as dovish and I think that’s more than fair to people who disagree about what inflation means right now. I don’t like pieces like this one that speak authoritatively on so little evidence.
Not really, right? They make a lot of money even after they get it wrong?
"Right now, it feels like the supply issue cannot be remedied or solved because of heavy regulations and a stagnant productivity."
This supply issue has existed for, what, a few months? We can literally see the containers piled up on the coasts, is there a good reason to believe that once the backlog is cleared there will be some kind of permanent problem? I have not seen a compelling argument, the original article here doesn't make much of an argument for sustained issues although they give that impression with the headline and the intro.
I will be very shocked if heavy sustained demand doesn't induce productivity gains (which have evaded the US economy for quite some time), but I will also be very surprised if the level of demand we are seeing from pent-up COVID-19 cash sustains itself much longer, a lot of goods demand is going to convert into services demand - if only because of shipping delays.
A significant role in bringing the world economy to its knees in the financial crisis - that sort of thing?
Haven't you ever heard of "talking your book"?
From where I sit, Krugman has been right a lot more often than the competition over the last few decades.
(I remember him discussing it in detail in this [1] debate with Larry Summers, although it's been a while since I watched it).
That view doesn't seem to contradict the original article, which says prices will increase "unless there is a significant boost in productivity so supply can catch up with demand, or policy makers shift to a tighter stance".
They do, but not in the game of writing truthful blog posts. If you think the market consensus on future inflation is wrong, you can buy TIPS, maybe even with leverage. People buying and selling those literally have skin in the game for future inflation.
Atleast the labor supply is artificially constrained in the usa by immigration restrictions. All they have to do is loosen some (they wouldn’t need to be completely removed).
As for paying much attention to him in academia, afaik he's not really active in the publish or perish academic game anymore so I don't get this as a criticism, but his influences are still there.
I agree that wage growth is good but not in the manner it's happening right now, through insanely easy money policies creating massive inflation that's easily outpacing any of those wage gains. Again, you can't print and spend your way to prosperity. Maybe some of these tools would work if they'd ever let off the gas and removed them but that's not what's happening.
I appreciate that you feel strongly on this matter. However, the strength of your feelings are less relevant than the fact that different people (who all know quite a lot about this sort of thing) do not agree with you (or with each other). Calling MMT folk "insane" may make you feel good, but it neither refutes their arguments nor substantiates yours.
For what it's worth the US has economically out-competed the European Union in that time-frame, with the US basically following Keynes and the UE going the austerity route most of the time (and only at times, begrudgingly, also following Keynes as a result of the Americans doing it first). There's also China that has out-competed the US and the UE both, but that's another story.
I'd like to advocate for a slow controlled de-growth so we can reach climate agreement goals, and sustain humankind for a few more centuries, in decent living conditions.
> Addressing this imbalance will mean placing upward pressure on wages to entice more workers to work longer as well as requiring investment to improve productivity.
At some point the rest of the world will tire at working for USA's consumption, I wouldn't be surprised if that crash gets much worse than the great depression.
Inflation can be very costly, especially for the most disadvantaged who do not have investments to hedge against the rise in prices. It may have a positive first order effect in the short run, but it is an elusive one.
Inflation, if out of control, has the potential to bring the interest rate to levels that would turn borrowing extremely costly --therefore making acquisition of capital more expensive, affecting productivity.
Another side effect is that the government debt could become extremely burdensome, which would force the government to essentially print money to pay its debts. That is effectively a tax (called _seignorage_) on the population. In order to pay its debts, the government prints money, which in turn makes goods and services more expensive --i.e. _seignorage_. High inflation can affect consumer behavior and depress economic activity, which would lead to unemployment, it happened many times, and it is called stagflation. A slower economic activity coupled with increase in prices could then make production more costly, which would push inflation even higher but also increase unemployment.
The key here is whether inflation would get out of control. The Fed seems to banking on the idea that this high inflation is transitory, which means that despite its current high levels, there will be some accommodation in the medium run and things would go back to a stable and acceptable target level. Some, like the article above, does not think so. If that's the case, then the Fed will need to act soon.
CPI calculations are very tricky. Deflation in telecoms, for example, has been very understated because how do you compare a data plan with a voice plan (in the UK, they had to adjust two decades of CPI numbers because of this calculation error). Imo, we place far too much reliance on CPI which is, after all, only one measure of inflation. Everyone seems to believe that prices are rising faster than CPI, and they would probably be right (I am in the UK, food prices in Canada particularly are...out of this world...particularly for meat, which seems to cost at least 3x the price here).
For housing, you might not pay market rate due to having bought a house long ago, or rent control, or some other way of getting a sweetheart deal.
because
> Mandatory expenditures, such as Social Security, Medicare, and the Supplemental Nutrition Assistance Program account for about 65% of the budget.
The budget is about 6 Trillion US dollars (FY22). Take 65% of 6 Trillion and start multiplying it by CPI and you'll see why it's in their best interest to understate it, and understate it greatly. If it were calculated higher, they'd have to borrow more than the $1.9 Trillion that they already are. To pay for a single year.
https://www.thebalance.com/u-s-federal-budget-breakdown-3305...
If you look at the debt chart, you'll notice it basically starts growing, and growing exponentially, around 1970, when Nixon took the US off the gold standard and going to a fiat currency with no real backing other than the gov'ts word, and the people believing in it. That's waning.
Your choice at this point, barring some insider information on specific companies, seems to be to have to follow the FOMO wave into an already insanely overvalued market with the hope that you can get out before it all comes crashing down.
One explanation that fills some gaps for me is that the shift itself reduced efficiencies. They give an example of this at the consumer level, where spending moved from services to goods, putting a new kind of pressure in raw materials and shipping. Another I'm aware of is in energy, where disruptions and shifts in use case for energy are forcing use of less efficient types of energy production.
Reduced efficiency doesn't show up cleanly in supply and demand curves because it happens in between the transactions where you measure them. And after thinking once about it, it's impossible to unsee all the ways a sudden shift reduces operating efficiency of almost every kind of economic unit.
Most American workers just produce local services, they aren't a part of the supply chain for consumer goods. When they work the money just goes around in the economy, they neither add nor remove anything. So before another person paid them to do a job, and then they bought some good. Now the another person buys a good, the state prints dollars for the worker so the worker can buy a good without working, meaning the good now got bought twice when before it would only have been bought once.
It's similar to the old argument over slavery. Yes, removing slavery causes large realignments in the economic system. But overall removing slavery grows the economy, both by encouraging automation of jobs people don't want to do and by increasing the number of people buying stuff and performing more productive labor. Add in additional points about recognizing basic human dignity as needed.
We're no where near full automation so probably a bit early for UBI, but I do think there's an argument that if the workforce demand isn't met, automation will be used to backfill. Takes time of course, but it's a one way street.
Somewhere between 30% and 50% of jobs do not 'produce' anything, they are Starbucks, Macdonalds, etc. They have no bearing on supply of goods and their shortage.
"yet everyone has tons of money furthering pushing up demand"
This was happening at the top of our wconomy for the past 30 years, thata whu the stock market and house valuations have sky rocketed.
Most people who couldn't get what they wanted would have no way to prove that. Whereas people who got what they think they couldn't, would have that memory strongly planted and even shared.
https://charlestonbusiness.com/news/automotive/80346/
I don’t have an academic paper, but I got the same story from several pretty big rental providers. (I needed about a dozen golf carts for a project)
It was crazy - the rental places had no inventory because gold courses weren’t offloading older gold carts due to the supply chain issues.
We ended up buying a smaller number of bigger utility vehicles from Bass Pro Shops, of all places! The techs had fun with that.
Probably both were contributing factors, along with a slew of other things.
This particular story does seem like it could be a folk-tale explanation, but it's not really about golf-carts - no one cares about golf-cart shortages. It's just a simple example of a broader issue for people to easily grasp. Even if it isn't particularly accurate, the same thing is happening in/across just about every industry
And similar to the suburbs point, sure the suburbs existed before COVID, but they are becoming more heavily utilized (extra bedrooms turned to offices reduces the supply of housing) at the same time as an uptick in demand.
In fields where the inputs are unknown, obscured, non-linear, and sometimes non-deterministic: asking "why" is going to create cognitive biases that are very difficult to break.
- Why did the Soviet Union fall?
- Why did Trump lose in 2020?
- Why did I eat a cheeseburger when I'm trying to lose weight?
Those all turn into narratives that may or may not be correct, but are usually self-reinforcing. Confirmation bias also means we evaluate the "why" question as follows: "given what I know about this situation, and how I think things generally work, can I see this singular narrative as being true?" That leads to blindness of other possible interpretations, as well as other cognitive dysfunction.
To be a little cheeky - that is why commentators on politics, economics, social sciences, psychology... are full of shit.
Asking why may be the act of cognition, as you say - but my take is that the act of cognition itself will not lead to understanding the truth, or better decisions. Making up fairy tails is also cognition but does not help us build mental models to better understand the world around us.
So yeah, after 10 years of thinking bubbles were about to pop I'm finally on the "this is the exception" this market is never coming down team. It really is politically infeasible for it to move in any other direction while it's totally politically feasible to print money and maintain high nominal values.
- Keep your Beta as high as possible, you want to be as diversified as possible heading into a difficult environment
- Cash is trash
- Value will accrue to real assets and hard money. Real estate, equities with consistent cash flows and strong books, commodities, crypto, land, natural resources. These kinds of things
There are plenty of videos of him on youtube going deeper on all of these topics
Also, that assumes you are the only one (or the other person (s) in the house have very similar schedules) in the house. An assumption which if you have a house wife and a few kids, is largely invalid
I don’t think any of the stimulus checks covered a month’s rent in any major city, and the checks weren’t coming monthly.
(Now, I also don't qualify for the stimulus, and if I did, I would probably have been unable to afford a 1 bedroom apt. here.)
Anyways, raising a kid with two earners is too damn hard. That's what's really going on.
E.g., school finishes early afternoon, large amounts of school holidays that dramatically exceed the annual leave entitlements of two parents combined, etc.
If they get it wrong clients may move their money elsewhere
All the incentives are aligned to go big on a theory and talk it up, and then if you are wrong just dust yourself off and try again- all the while cashing your paycheques.
To be honest, I am not a huge fan of hedge funds either. But in this specific case, I'd rather take their advice. In my opinion, for this specific case --discussing inflation trends--, I don't see a lot of room for hedge funds to be partisan? No new legislation, no wrinkles in the system, etc. And they may be wrong, and Krugman may be right after all. Economics, especially Macroeconomics forecasting analysis, should be treated with some reservation. I just find the particular post quite convincing given what I've observed in the last few months.
They have billions of dollars of bets on where interest rates go. Inflation trends and how they are interpereted are what drives interest rates.
If the fed took on board this particular interpretation at the next meeting Bridgewater would make low double digit billions on those trades.
Doesnt make them right or wrong, but anytime you see a talking head on cnbc or putting out a research note - they are talking up their positions.
The rest of the world gets US stocks and other assets. The US as been better than average at producing them. It's true that this might not continue forever and there might be corrections at some points but this does not mean a crash.
I'll give it to you that it's probably not an optimal time for more government debt right now but the monetary stimulation and slightly above average inflation had been desperately needed for a long time. Undershooting inflation was causing gridlocks in private markets everywhere.
If other countries get sick of buying US bonds, the relative value of the currency might depreciate. But as long as it doesn't happen all of a sudden that might not be catastrophic - other countries having stronger currencies might reduce US imports and increase exports (narrowing the trade deficit). Plus increasing automation might mitigate the cost of manufacturing in the US vs overseas.
Or in other words, it could end the American dominance that has lasted since WW2. If it happens slowly enough it wont be a crash, but the American dominance will still end. I see no scenario where USA will maintain its current dominance, the living standards of Americans will get massively reduced and stocks will massively go down, it could happen quickly or slowly but either way it will happen.
So we'd need to manufacture a few % of GDP more in the US for it to balance out. That might make certain things like TVs more expensive, but technology trends have often made those sort of things dramatically less expensive, so overall (and with increased automation) hopefully that wouldn't affect the standard of living too much.
Certainly it might make it harder to attract foreign talent. But hopefully that would mostly be because of increases to the standard of living elsewhere rather than decreases to the US one.
[1] https://www.statista.com/statistics/259096/us-imports-as-a-p...
[2] https://www.statista.com/statistics/258779/us-exports-as-a-p...
While households are typically cash constrained economies operating in a fiat system rarely are because cash is essentially created at will by the banking industry. Economic constraints are largely due to the ability to identify, fund and execute in good investments that will provide a reasonable return on capital given the risk.
Is there any investment area in the economy that is currently constrained by the lack of cash?
Keep in mind what is key with this thesis is not some fantastical belief that stocks always go up out of magic. It's the understanding that the actions undertaken by the federal government and major banks that run the global economy will always generate increasing stock prices no matter any local blip or bloop or crash or fall in that moment. Buy the dip and take advantage of the sale price, then enjoy the guaranteed ride upwards supported by every major financial institution and first world government on earth, is what the past 100 years of macroeconomics have taught us.
1. https://static.seekingalpha.com/uploads/2011/8/4/763684-1312...
2. https://static.seekingalpha.com/uploads/2020/3/16/saupload_b...
Yes, the US stock market has had a wonderful hundred year run during a time the market went from a backwater developing market to a global hedgemon and through a one-time demographic dividend where it halved its non-working population (children) and doubled its workforce (women) and had an extremely open immigration policy for working age adults.
Of course past performance is no indication of future concerns.
Because of the reserve currency status almost every country on earth is running a surplus vs the US and buying their financial assets.
You buy 1 BTC from me for 60k. Now let's say I want to buy BTC again, but you want to sell it for 120k, so now I buy 0.5 BTC from you for 60k, and if everyone agrees that 120k should be the fair price, we've just bid up the market cap and value of BTC without really increasing the fiat.
Now imagine that with different crypto, stocks, other financial instruments, real estate, etc etc and in different combinations and with margin and derivatives and what not.
If anyone in their chain borrows against their inflated crypto, that creates new fiat.
So it has, by your own admission. You predict a worse eventual outcome, which is not insightful. When this will all end badly is the question, not if. Rome lasted a good long time playing these games.
It feels like saying Elon Musk will make make your next stop at the grocer's more expensive, because selling his 10% of shares for $20 billion will contribute to inflation because of all the stuff he's gonna buy with that money.
I wonder about the price of real estate in Brownsville though
Fed critics like that definition because it lets them more easily paint the fed in a bad light. They claim the fed is crazy because prices never fall. I think that's disingenuous because of the improper definition of 'transient'.
Will inflation be transitory? Probably yes, if you use the first definition. I don't think there has been a situation in modern history where prices in America have backed off significantly. Prices are sticky, especially when labor shortages combine with inflationary pressures to drive up wages and therefore the costs of production. I suppose you could take a few hits off Cathy Woods' pipe and claim robots will take all of our jobs and send us into a deflationary spiral next year, but I think that's likely several years away at best.
As the fed buys bonds, it raises the price which lowers the rate.
As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy.
Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thin air. The reason why corporations borrow more is because with a lower WACC (weight average cost capital) they can invest in more projects (I.e. spend money) for any initiative that has a positive NPV.
But we must prioritize resiliency when an economic shock would result in societal instability. I'm willing to pay more for food to be available 100% of the time versus paying 20% less for food to be available 80% of the time.
JIT iPhones? Sure why not?
JIT ventilators and PPE? Maybe not great. Maybe it’s ok to have some slack in the production of those types of things, you know in case of emergency.
Still, I think for the environment it's a win, not producing anything that's not needed. But in the end most of it would get sold anyway at a discount.
Check their website, they have this crazy idea where you put in the country where you are and then they give you a list of people to call so you can do business with them. The even crazier thing is the people who pick up the phone aren't humanized robots, but are incredibly intelligent and talented people who want your business and will create tailored plans to suit your needs.
If I want to talk to their President all I have to do is call him.
https://www.lloyds.com/news-and-insights/data-and-research/m...
On the lessor's side, since the primary market prefers bona fide businesses you're left with the customers who cannot rent from the primary market. Meaning you're much more likely to end up on the receiving end of abuse (outright theft, vandalism, being an accessory to a crime), or at the very least problematic customers ("I know I rented it for one day but I have to pick up my kids tomorrow so I'll return it Thursday"). A business can absorb such variance, or at least create the illusion of doing so, whereas for an individual such events present a major hassle.
You can bundle all of that transactional risk up into a kind of insurance, but that only works if you're large enough that the insurance company can verify that you're not defrauding them.
If you are AirBNB, why would you need an insurer at all?
If you're Airbnb, you're exposed to one type of risk: houses getting damaged. If you're Lloyds/GEICO, you're spread out over health risks, housing risk, car risk, maybe some financial assets risk etc
Say someone rents an AirBNB and absolutely trash the house, racking up thousands or tens of thousands of dollars of damages. Or steals valuables that are in the house. Or on the flipside, perhaps the property has not been repaired and the Airbnb renter is injured on the property. Surely AirBNB would require insurance for such types of incidents.
Why would they not require insurance when they are in the business of rentals? Most jurisdictions would allow a property owner to include AirBNB in a lawsuit against a renter conducting criminal activity or a renter suffering damages from criminal negligence of the property owner.
First? I think this is an ad. Newspapers are paid for placement articles like this all of the time. Now, how much oversight is placed upon such ads-articles, depends upon the publication.
The Star is well respected, so I suspect there's some strong oversight on opt-ads by them. EG "Please write about us", more than "Here's an article we've written for you." However, I'd be surprised if some cash didn't change hands.
Second? This doesn't mean the premise is wrong. Part of the problem is how vast Canada is. Local production in Canada, crossing 4+ timezones and 10000km, is going to result in local shortages of products, and thus, local price spikes in produces.
For example, if you have a local butter shortage one year, shipping from 5k away will raise the price.
Again, my above comments aren't meant to debunk this article, just provide some additional data.
Oh, also.. pricing is indeed different in the UK and Canada. I visited... 5? years ago, during a particularly rain free, heat wave summer. Was nice, btw. :) But during my visit I did see those massive pricing differences in some things.
Of course, UK pricing for wood and fuel was outrageous for me (just things I noticed, and these are things plentiful in Canada).
But you're right about market controls in Canada, which are designed to ensure supply, and keep farmers in a profitable state. The US, for example, does this in a different manner, for example, they don't limit production, they buy excess.
On the dairy side for example, they buy excess milk and make "government cheese", which can be stored longer than milk (years), and is often given to the poor.
https://inflationdata.com/articles/inflation-adjusted-prices...
Is the fuel cost per mile traveled 4 times higher than it was in 1981? No. Fuel prices adjusted for CPI are about identical with what they were in 1981 ($3.80/gallon): https://inflationdata.com/articles/inflation-adjusted-prices... And fuel efficiency has improved by about 40% in that time: https://www.epa.gov/automotive-trends/highlights-automotive-... (Even as vehicle reliability and safety and comfort have also gone up.)
Some wags have pointed out the price has been constant for many years https://web.archive.org/web/20080512223437/http://www.shadow...
The billion prices project independently collects prices and matches CPI well https://www.businessinsider.com/million-prices-project-vs-th...
Note that the inflation stats in Argentina *were* manipulated and official numbers differed from billion prices. https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
https://fred.stlouisfed.org/series/T10YIE
The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misallocation of capital can't be good. Real yields have been negative out to 30 years for some time now, meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!
Until the robots take over to fulfill the supply to meet the demand I think based off what we are seeing now everyone should be working and pay everyone a solid to great wage for contributing to society!
I mentioned tipping and stuff because the OP's comment seem to think since Im not for UBI that I don't want people to receive a fair to great wage for low level jobs which isnt true.
I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked").
So we have the amazing situation where you will get funding for a project, but only if you promise to lose money. Investment into real assets is extremely low, chemicals and O&G are trading on mid-single digit P/E ratios, and are furiously trying to return capital...whilst we have massive shortages...it is a very unusual situation. And, imo, the cause of this is the shortage of risk-free assets (because creating this shortage, due partly to regulatory restrictions, did not mean that investors suddenly started making investments into the real economy...most couldn't...they just had to buy more "risk-free" assets from corporates who already had too much money or PE funds that were playing the capital cycle...ofc, no central banker understands that some institutions are limited, the textbook doesn't teach that, they don't understand it).
Risk free assets don’t exist. So by definition, they are always in short (0) supply. Even treasuries are at currency, inflation, and interest rate risk. If you are using risk free as a synonym for us treasuries , that’s what qe has been pumping into the system. Are you saying you want even more qe ?
> meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!
This is probably somewhat hyperbolic since companies who borrow anywhere in the ballpark of the risk-free rate (i.e., large, responsible, and generally financially conservative organizations) typically have an internal hurdle rate that is well in excess of their cost of capital.
What is true is that the hurdle rate exceeds the cost of capital mainly as a risk mitigation mechanism; it is a margin of safety. IRR projections almost invariably depend on certain assumptions about future business conditions. So artificially depressing the cost of capital can result in "more marginal" projects getting the green light, and therefore can increase the potential for financial damage in a serious recession. You can think of it as "risk leverage".
First they already receive something of value, which is our money.
No one forces them to sell their stuff for our money.
Nor does selling us $1 of goods entitle them to get anything above and beyond $1 of our money. They have already been paid with sufficient value.
Now they must spend that dollar in America somewhere. So they have a choice
a) buy some other good or service from America (trade is balanced)
b) buy some American asset like a bond, share of stock, etc. Then the trade deficit goes up by $1.
The world is choosing to do b). No one is forcing them to. The moment they stop doing b) and start doing a), the trade deficit will be balanced. The moment they sell their existing dollar investments and buy US goods, the trade deficit will reverse. It is their choice, not America's choice.
The input of the U.S. in influencing this choice is merely the setting of interest rates. By setting rates, they determine the overall returns obtained from option b). Thus they can make option b) more attractive by raising rates, and less attractive by lowering rates. But our rates are basically zero already. Does it appear to you that the U.S. is running high interest rates in order to attract foreign investment? No, we don't really take the trade deficit into account when setting rates, we focus on inflation.
Now we could take steps to change the regime and strongly discourage imports. This would be the equivalent of
a) taxing foreign investment, so that there is a wedge between the interest rate obtained by foreigners and our domestic policy rate for fighting inflation. At a high enough tax, the rest of the world will collectively want to pull their money out of America, sell their dollar assets, and then buy American goods to get out from under the tax.
b) Subsidizing domestic production. The problem here is that business will tend to pocket the money. Option A is the more efficient approach.
Option A also attacks our status as the global reserve currency - it's about time we stop being the gold standard for the rest of the world. All of these deficits are the result of us being burdened with reserve currency status, which on the one hand gives us a lot of power to punish other nations, but on the other hand destroys the domestic manufacturing base.
I look forward to the time when we are no longer the world's banker but merely any other nation that needs to run balanced trade. For that to happen, we need to make our assets unappealing to foreign purchasers.
And a rate of a trillion worth of goods per year will stop flowing into USA, that is the current trade deficit, you don't think that will cause some sort of crash?
Your explanation here is like saying "This isn't a bubble, people wanted to pay this much for stocks, if stocks don't deliver people will sell and prices goes down, that is how it should be!". That totally ignores the effect of the economy when that correction happens.
There is a lot of trickery you can do with economics, but other countries will protest sooner or later and stop sending things. I think the economy should take that into account or that crash will be horrible.
It didn’t take a big demand increase to start seeing gaps in shelves, and once that happened a degree of panic took hold and even though there was plenty in stock in warehouses, it wasn’t able to be distributed fast enough.
The difficulty is that the big supermarkets have got their supply chain down to a fine art and it only takes a small fraction of people to start buying an extra here and an extra there for it to start having an impact and they then have to struggle to keep up.
I remember a couple of years ago when we had a lot of snow (for England) and it kiboshed the supply of things like milk and bread for about a week, even once all the roads were clear.
You only need a chunk of people to buy a few more toilet rolls than they usually would "just in case" and suddenly the shelves are empty.
Plus the commercial domestic imbalance.
[1] https://www.census.gov/library/stories/2021/03/many-american...
[2] https://www.businessinsider.com/half-of-americans-used-1400-...
People were afraid they won't be able to buy bread, so they bought flour and yeast... then bought bread, and eventually threw away the yeast.
Every year we're told it's our absolute last chance. Environmental brinkmanship hasn't work and the tune needs to be changed. Literally no economies are planning for mass famine or wars because no-one actually believes that is going to happen, except religious cults.
You are right that there is no absolute deadline. Now we are stuck with our hotter summers "forever". But we are not yet stuck with what comes next.
That is the problem exactly. We do not listen to scientists, because it's more convenient to ignore it. And when their models become reality, we'll just blame them for it, as they "knew" and did not prevent it.
2. Countries don't plan their economies half a century ahead. Most struggle to plan beyond the next election cycle.
The claims sound fantastic if you don't have a solid education. The people you are trying to convince do not have an education that will allow them to understand for themselves. They fundamentally distrust the people trying to convince them. There is no "to be believed." That has already reached the saturation point.
The vast majority of people in Michigan are already connected to an extremely efficient distribution network for electricity. The marginal cost of delivering additional energy through this network does not round to zero, it is zero. Meanwhile heating oil is delivered by trucks with a large cost in depreciation, labor, and fuel (further fossil fuels burnt in support of a system which was designed to make economic sense with <$10 oil). Whereas domestically produced oil can never drop below $40-50 a (marginal) barrel at the refinery, and imported oil never realistically below $30 + the cost of fighting forever wars for resources, there is a clear and feasible convergence of the marginal cost of solar energy generated in the Southwest US to $0. All this would make solar a viable replacement even without the role of heat pumps, which reduce the raw energy cost of heating with solar to around 20% of that of burning fuel.
It's not honest to characterize what has been happening in the last few weeks as a last minute action by the administration "just before winter".
It's also not honest to focus exclusively on the costs of the pipeline being shutdown without also considering the potential costs of it staying open. I'm entirely open to someone presenting the case that the costs of shutdown vastly outweigh even the worst projected cost of it remaining open, but if you're going to present that case, do it while being aware that there are people (including the MI governor and various Indian tribes) who don't agree with this assessment.
MI voted for Biden in 2020, its US HoR representation is split evenly between both parties, and both US Senators are Democrats. If you're suggesting that those in favor of carbon credits and higher gas taxes might lose representation if this pipeline is closed, maybe make that case more explicitly.
Also, it's not unambiguously clear that winning battleground states like Michigan is synonymous with winning Michigan, nor that it's necessarily required at all given the steady drifts of some red states into the purply-blue zone.
Indeed, it would be great if the United States proactively funded deteriorating infrastructure before it was past-expiration and at risk of collapsing.
You can claim that the US is artificially raising natural gas prices, but the exact opposite is true. By chance of circumstance, we've historically underbuilt LNG processing facilities and that is isolating the US market from the rest of the world, so we have some of the lowest natural gas prices in the world right now.
Please take your uninformed takes and cringey political rallying elsewhere, it's not what this platform is designed for.
https://news.ycombinator.com/item?id=28378481
https://news.ycombinator.com/item?id=22198190)
If you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules, we'd appreciate it.
January 2021, I produced 197kwh the entire month.
I know this discussion is focused on heating. But from an electric vehicle perspective; 197kwh is not that much. In the winter, I don't think it would be enough electricity for a homes electric needs + EV or electric heat.
I can make 1MWh over 1 month in the summer. Basically, Michigan has short days in the winter. Snow does sit on top of the solar array until it melts, which robs me of production during sunny winter days.
It wouldn't be impossible to use solar to replace heating oil in Michigan, and the over capacity installed to satisfy winter demand could serve as a "peaker plant" during the warm summer months.
While I know renewables have decreased in costs, I think the costs related to building overcapacity is a hindrance.
Serious question, I’m debating a similar setup for myself.
Every financial debt has a corresponding financial asset. Why follow the 'debt' and not the 'asset'? Because you have a psychological anchor on the word 'debt' that causes an emotional reaction?
All money is somebody's debt. That's how the accounting works. Rather than looking at the books from the 'credit' side, why not look at it from the 'in credit' side?
What I find amusing is how the bank borrowing from you so you are 'in credit' with the bank is a good thing, but the government borrowing from you so you are 'in credit' with government is a bad thing.
Given those are identical propositions in accounting terms, rationally the view about them should be the same.
I don't know what you are talking about.
The pandemic was just a blip on the radar, a period of adjustment we still don't understand fully economically, but it was not a Great Depression as it lasted only a couple months and affected just a part of the population (layoffs, but with goverment safety nets)
Lets take a C8 Stringray @ $100K, if you buy it today, it will cost $107K over 5 years. In five years it will cost you $128K.
Example: Joe just had a kid and was going to buy a house in a good school district no matter the cost. With a higher mortgage rates, he'd have wound up house poor for a few years. With today's rates, he has a comfortable savings rate. Since he's not scrimping, he decides this month he'll buy that putter he'd been eying.
Michigan can’t get any electricity from Nevada today - they are on different grid ties, and there would need to be a ton of upgrades in the DC-DC and VFT ties between them to get that significant a chunk of electricity sent the ~2000 miles from Nevada to Detroit.
What is a 'real asset', when nothing exist outside the casino? At most, you could change your chips for another casino's chips.
And when the banks decide to peg their liabilities to casino chips to leverage that drive from taxation, what then?
Once you are required to get casino chips, or else, you will offer up real goods and services to get them.
Cash isn't real. It's an accounting fiction.
Look, if the government wants to migrate utilities away from gas for heating and replace that with something else, the way you to do that is to have the government build, or contract out to build, the something else that is just as reliable and just as affordable, and then when that is in place, you work with the utility to switch over to the new thing and then retire the old thing. This is called a migration.
Shocking, I know.
The way you don't do it is to adopt some neoliberal obsession with turning everything into a market where end users trying to heat their homes are facing higher prices, and the hope is that these higher prices just cause the utility to transition to something else through the magic of markets.
That's not what markets are good at. Funding big infrastructure projects and coordinating the replacement of one infrastructure with another is the responsibility of government, not markets.
We didn't build our hydro and nuclear capacity by relying on the magic of the free market. We had a planned decision to build this infrastructure as a result of public need, and so we built it, and then the utilities hooked up to it, and the end user got power. We didn't build the interstate highway system by relying on free markets either. When people want to deploy subways, the solution is to build subways, not just tax gas and hope subways just spring up out of the market.
Telling individual homeowners "Well, there is wind power technology out there" is eco-sadism.
It is taking things offline or penalizing them instead of having replacements provided, and we just hope that the penalties will cause replacements to spring up.
This is faith-based energy policy. It is not effective governance, and it is not politically sustainable.
If that happened all at once, for every credit and every debit, it would indeed be a problem. But that doesn't happen, ever.
Assuming the 'power factor' of the economy is one is a category mistake.
Banks create money on demand by discounting collateral. Government creates money on demand by discounting the power to tax.
Fiat money disappears by the drain to taxation, to repaying loans and to 'rainy day funds'.
Fractional reserve banking absolutely exists.
QE is so thinly related I can hardly imagine how you could contort it to have "disproved" something which is codified in law and taught in basic finance and economics courses.
That money will eventually be used again but it's worse than paying someone to dig and fill a hole.
Q: How much money flows into "X" market? A: None, money flows THROUGH markets.
If the market valuation goes up to Y+Z, you could say money has "entered" the stock market, pushing its share of value to (Y+Z)/(X+Y+Z) even though the money in circulation, X, could be unchanged.
“Well if those poor people weren’t gambling on that ponzi scheme for a new dog coin they would actually be materially improving their living conditions and prices for everyone else would go up”
It’s interesting to see the wealth transfer of all these people that usually buy weekly lotto tickets get crypto instead and send their 10s of millions to programmers making an ICO and a fancy website.
Those subsidies failed in their stated purpose of resiliency. During the bad times, all that mattered is where more profit could be found.
The people in China need to eat too; the pork is going to be eaten. It is hard to understate how hard the Chinese have been working to provide goods, services and technologies to the rest of the world for the last 40-odd years. They've been quite clear the whole way through that one of the things they want in exchange for that is support feeding themselves.
Them buying American pork in a tough year is not some capitalist failure. This is what hard work and savings is supposed to get China - front of the line in a crisis. It would be grossly unfair to pay them then tell them that they've actually got monopoly money that can't even buy pork.
I also have a pet theory that CPI understates the cost of housing due to people who are pushed out of entering the market altogether (e.g. homelessness rising, people living with parents longer)
Sort of the same way some people say unemployment figures understate the true number by ignoring discouraged workers / people who have stopped looking altogether. I have a hunch there are many discouraged folks who have stopped looking for housing altogether.
CPI is broken because it doesn't factor in a "change in taste or prefence"
CPI treats individuals as a giant unmovimg population mean.
To counter they change to use vector fields.
> Generally, owners' equivalent rent is obtained through surveys asking homeowners the following question: "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?" [2]
I would guess that some owners’ ideas of what their house would rent for might lag the market?
[1] https://carcinisation.com/2020/12/11/survey-chicken/
[2] https://www.investopedia.com/terms/o/owners-equivalent-rent....
All this results in higher wage expectations due to people expecting higher wages based on higher prices (gasoline, cars etc) which moves the fed money to people's hands and increases the prices of consumer goods including fmcg like TP.
As you can see there is a long link from cause to effect which is why we are seeing the slow increase in inflation. In many sectors like agriculture this is not even priced in yet as they are ultra competitive. But as their inputs go up (people and raw materials, hardware ), they will also have to increase prices.
Even when eventually fed raises rates or tapers their buying, prices once gone up have a way of sticking around unless efficiency improvements like automation reduce input costs.
Scenario 1: Fed buys $20 billion of corporate bonds per month from Microsoft.
Scenario 2: Fed does not buy $20 billion of corporate bonds per month from Microsoft.
Consider all other things being equal, in the first scenario Microsoft's borrowing costs are drastically reduced. This means that Microsoft has more money. This means that Microsoft is able to hire more people, that the people that work for them get larger bonuses because they are typically tied to the profitability of the company.
This puts more money into real people's hands to buy toilet paper and golf clubs. That then multiplies throughout the economy. Suggestions for additional reading if you are really interested in these things:
1. Money Multiplier
https://www.albany.edu/~bd445/Economics_350_Money_and_Bankin...
2. M1 vs M2 money supply
https://www.investopedia.com/terms/m/moneysupply.asp
3. Fractional reserve banking
https://www.investopedia.com/terms/f/fractionalreservebankin...
4. Fed open market operations
https://www.investopedia.com/terms/o/openmarketoperations.as...
Most, compared to all. And power plants are much more efficient at capturing energy than internal combustible engines. I see no real issues with the technology, just small kinks to be worked out, which is expected
With the world shutting down the companies that supply those kinds of places had a warehouse full of inventory and most of their usual customers either were entirely shut or going through a lot less product.
I'll wager your grocery store called one of them up and got a few pallets to resell, creative move on their part.
Many countries, including the US, have run trade deficits in the past for multiple decades and it's been fine. In those cases where it's not fine it's because the economy had nothing (or not enough) foreigners wanted, e.g. Russia in the late 90s.
Yes if your economy collapses for some reason you'll have a deficit problem, but in fact past deficits don't affect that. They don't matter because the deficit was already invested in domestic assets. Since those assets change in value as your economy changes, it nets out. The foreigners already invested their money in your economy and they suffer as you suffer. However the past deficit isn't going to cause any such collapse. There would have to be some other additional factor.
That's what history tells us actually happens, anyway.
A 1% tax would not cause a trillion worth of goods per year to stop flowing into the USA. Honestly, I think you are reacting too emotionally. The nice thing about a tax is it can be gradually increased to reduce foreign investment. There are actually many that have discussed taxes on foreign capital inflows, it's not some random idea I just cooked up.
>Your explanation here is like saying [crazy stuff]
No, it's nothing like that. If you have some substantive disagreement, let's here it over the doomsaying. Note, the real downside here is just somewhat higher equilibrium interest rates, which is why now is a great time to do this.
> crash will be horrible.
See above.
And no matter what finance trickery you do, fact is that USA will need to stop consuming so much. Your solution would lead to the same decrease in consumption, just with different means. And when that happens it will no longer be able to attract foreign workers as easily since American consumption is no longer privileged. And when that happens the domino effect will cause issues all over the economy.
http://www.econ.yale.edu/~ka265/teaching/UndergradFinance/Sp...
Now if there was zero foreign investment, then the U.S. deficit spending a lot (please don't use the word "printing money") would cause demand for foreign goods to rise. You are right about that!
But - does that mean that we buy more foreign goods or that the value of the dollar falls so that the money spent on foreign goods (in dollar terms) is the same as the money spent by foreigners on our goods?
You see, there is another degree of freedom, namely the exchange rate! The exchange rate is all that is needed to clear exports and imports so that there is no trade deficit, and that is true regardless of how much "money printing" happens.
So whether or not you get a (net) trade deficit is going to be determined by (net) foreign investment, which raises the dollar and prevents it from falling enough to equalize imports with exports. The residual is the trade deficit.
Viewed a different way, the demand for the dollar is the demand for american goods + the demand for american assets.
If the demand for assets is zero, then the price of dollars is whatever it needs to be so that our deflated dollar makes our goods sufficiently cheap and foreign goods sufficiently expensive so that the stimulus spending does not cause a trade deficit.
Trade deficits are always and everywhere determined by net capital inflows. That is what the Balance of Payments identity is telling you. They are not caused by deficit spending, declines in productivity, failures of our educational system, etc. It really is just capital inflows.
All the other stuff is important, as it effects the exchange rate, but it's not important for determining trade deficits.
Yes, when an item goes through something, it is briefly inside of that thing. I agree.
Yes, when you buy newly issued shares from Apple (rare), cash flows through the stock market into Apple's accounts, but again, no money went 'into' the stock market.
If you're talking about Apple selling devices, then it's another concept entirely.
Somewhere out in left field are the right things that need to be done.
The reserve ratio in the UK and Canada is zero. Which means we should have infinite money in the banking system according to your beliefs.
Yet demonstrably we do not.
You have the line of causality backward, as the Bank of England helpfully explains in detail here: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
2) "infinite money" without a legal limit to reserve ratios would only occur if every single bank actually had exactly 0% reserves, and it would take infinite time and infinite transactions for that to occur.
FYI using the observed absence of 'infinity' as a proof is generally poor logic as there is lots of mechanisms blocking infinity from occurring in reality.
Yes, producing meat requires animals eating a ton of plants and they also need a lot of water.
Except that can be mostly grass (that humans don't eat), and the water is just rainwater (that the animals in question will piss later, so it will end on the ground anyway).
The reason why animal-based farming exists is because it is the only way we have to get any food in certain parts of the planet where the only thing that grow naturally is grass.
If you look at the Bureau of Labor and Statistics they will happily provide you with more detail, for instance the median salary in a field for the top 10% of employees versus the top 90%.
I don't know how you'd keep that updated though, you can hardly say "the amount the richest 10% spend is the rich CPI" because it's a silly statistic. I don't know how you can reasonably say "the minimum amount required to be rich", it just seems silly on its face.
No, I don't think there's much of a way to make it work. It's probably more directly useful to understand whether people are saving money or how much debt they have, though that's going to lag.
I mean, or just ask people. The government is fairly good at doing that.
For income once again you can turn to IRS tax return data. I believe IRS can also sum your accounts as well as review transaction history. Creditors also report debts to IRS.
All told I believe the federal government can access all the information needed to know exactly what almost every American is paying for housing, how much they are being paid, how much they are spending, and how much debt they have.
This ignores the fact that dollar is used as a reserve currency. Since the dollar is a reserve currency people will want to keep it stable, so even though USA abuses its position as a keeper of this reserve currency by printing a lot of dollars other players still plays along and keeps sending goods to keep the value of the dollar high. But what do you think happens when they stop putting up with how USA abuses them? Well, they stop buying dollars, the dollar crashes, Americans can no longer buy Chinese goods and the American economic dominance ends overnight. Of course this would affect the rest of the world as well so they wont do it that quickly, but even if it happens slower it will still cause a massive crash.
I just don't understand why USA keeps digging their hole ever deeper, the more they dig the worse it will get, since right now they are building their economy on top of of a bubble that can be popped by China whenever China wants.
No, it's my whole damn point. Please re-read and stop it with the US "abusing" China by forcing them to run huge surpluses against us. These discussions are not helped with such emotional outbursts -- we are talking about currency markets, not your kids' tuba recital.
>Well, they stop buying dollars, the dollar crashes,
Yes, the whole point is to get them to stop buying dollars. That's the goal. And no, the dollar doesn't "crash", the dollar falls to its true value, the one in which exports = imports. That is the only possible sustainable value of the dollar.
> USA keeps digging their hole ever deeper
The only "hole" the U.S. is digging is allowing China to purchase an unlimited amount of dollars. You think China allows the U.S. to do that? It is capital inflows into the US that need to be reigned in, just as China does not allow unrestricted capital inflows into its capital markets.
What if the us pressured China and India to allow capital to flow to them instead ?
Does this make any sense ?: https://twn.my/title/mai1-cn.htm
