U.S. bank lending slumps by most on record in final weeks of March(finance.yahoo.com) |
U.S. bank lending slumps by most on record in final weeks of March(finance.yahoo.com) |
Yet when it comes to the economy, which is the product of an unfathomable number of variables, from the same people there are consistently these confident assessments of why we see x, y, z and what will happen.
It's worth discussing those things to the best of our ability, but we should have a tone of our confidence in these types of assessments that's commensurate with reality.
The problem with economics is that it's a social science, and that humans are non deterministic in their behavior. Not even seasoned economists can predict an outcome, the best they can do is understand what happened after the fact.
One part we also fail to consider is that there is a feedback loop between all the individuals in society and any large economic levers that get pulled. This along with all the complicated interactions that are a result of the specific imperfect set of information each individual has makes this problem next to impossible to fully model. At best we could have approximations and models that abstract that complexity away. We approach something similar to the N-body problem in physics, which on some level I'd argue is simpler even as we have specific equations government their behavior. Not so the case for humans and their "internal" decision making process.
As an aside, if there's one thing strategy games (and in particular Paradox' Grand Strategy games and Democracy) have taught me that might actually be real world applicable, is that nothing is simple or easy, and anyone (especially politicians) that they have one easy solution that will fix all problems is either ignorant or a charlatan.
I do expect interest rate to continue going up: inflation seems to be quite stubborn.
If someone wants to chicken little about anything it should be wages not rising to keep pace with inflation. If unchecked this would eventually cause a collapse in consumer demand that WOULD melt down the economy.
Are they selling the loans off their books to third parties? Or are they just refusing to make new loans that they would have otherwise consistently made?
I'm looking for a more concrete source.
edit: Found a source: https://www.federalreserve.gov/releases/h8/current/
1. These are seasonally adjusted numbers. The unadjusted numbers are smaller.
2. The article does not account for the $60b in loan sales (unadjusted) to nonbanks the week of 3/22.
Lending definitely tightened up the week ending 3/22, but not to the extent the article suggests
The largest generation, boomers, are now retiring. Up until now they've been pumping money into the economy and the investing with their 401k and things like that. Now that trend is reversing as they retire they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing.
The end result is a lot less capital than ever before, capital is now more expensive. Tighten your belts boys a prolonged slump is coming.
Withdrawing from a 401(k) has no real effect. Spending the proceeds does. The decrease in purchasing power blunts the restrictive effects of those savings being spent with no corresponding contemporaneous production.
> a prolonged slump is coming
Careful. America is uniquely tuned to benefit from migration. The present trend is professional money managers, afraid to admit the Fed is paying more than they’ve performed, continuously forecasting an imminent recession (and presumed rate cuts).
Highly disagree here....
First, selling stocks puts downward pressure on price and also p/e ratio. A lower p/e ratio means startups and growth companies trade at lower multiples.
Second, selling bonds increase yields, which means the price of borrowing (interest rates) goes up. When that happens, companies that borrow money (most of them) see lower profits because more money is spent on interest than on investment (machinery, people, etc).
Capital markets are complicated beasts, but withdrawing capital has very predictable effects - we just don't know if the effect will happen slowly or quickly (like in a panic).
One other effect that happens is that as people retire (or get close to retirement), their investment choices become more conservative and there tends to be a shift from smaller, more volatile growth companies to larger, more established companies with good dividends. That shift alone is worth a thesis or two.
As for your last comment, I can't tell from the wording whether you agree or disagree with the PP's comment. However, I would note that since the baby boomer generation is larger than the Gen Z now entering the workforce, that on average, experienced people are retiring at a higher rate than the rate that young inexperienced people are joining the workforce. This tends to result in higher labor cost (fewer people to fill jobs), which, when combined with higher interest rates tends to mean lower growth for a good period of time (measured in years, not months). Obviously there is variability from month to month and quarter to quarter, but the trend is clear (or will be soon to everyone). It's not the 1970's, but some of the parallels will be surprising.
I prefer to use the word "de-globalization", which covers some of the same effects.
Once that money has been dumped into the economy, it's going to slush around for a long time. Maybe there will be some massive capital destruction event but I can't think of anything potentially imminent.
If I put a dollar in the bank the bank can then use that dollar to loan to someone else, but I still have "my" dollar. So where there was 1 dollar there are now 2. Once we start pulling money out of investment vehicles we aren't only removing that money but also the backing the loans that depended on that money had.
Thus the boomers pulling out for retirement result are the capital destruction event.
The boomer ethos is “have the check for the funeral bounce” so that spending will be shifted forward.
https://www.pewresearch.org/fact-tank/2020/04/28/millennials...
I don't fully understand how the millenial population can go up between 2019 and 2033 on that chart.
I know bunch of family who've done this. All ski/mountain towns have now turned into de-facto retirement communities with younger workers often commuting 2-3hrs to their job.
Another way to look at this is from the resource, instead of financial, perspective - the boomers will stop producing but will carry on consuming, this will put a burden on the rest of us (modulo automation and immigration from / offshoring to places with different demographic characteristics - crudely, robots and immigrants would be cleaning up after them). Financial engineering (i.e. pensions) ensures that they (mostly) will be looked after, instead of tossed on the scrap heap.
One interesting scheme I recently came across is an assisted living home that doesn't take regular payments. Instead, they have their residents sign over their entire net worth at the event of their death, leaving nothing for their inheritors. The tradeoff is that they get to stay for as long as they live. Of course, this scheme has some obvious perverse incentives for the operators of the home.
https://shop.nplusonemag.com/products/the-next-shift-by-gabr...
This pattern isn't unique to Pittsburgh, of course, and has played out broadly across the US.
Aren't the majority of Boomers already retired?
The usual definition of Boomers is those born in [1946, 1964]. That's people currently 59-77 years old.
Some people do now divide Boomers into two groups, Boomers born in [1946, 1954] and Boomers II born in [1955, 1964], so Boomers II are now just moving into retirement.
These are financial effects. It takes extra steps to get to a real effect, unlike spending. (Financial effects are monetarily mediated, which means the Fed can do things.)
> lower growth for a good period of time
Agreed. That’s different from “a prolonged slump” [1][2].
Yes, at the margins. But these are still financial effects. When a capital project is delayed because the bank they hired to sell stock came back with a lower price after talking to the retiree’s asset manager, that’s a real effect.
This isn’t how banks work. When “a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money” [1]. Loans create deposits, not vice versa.
[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Reserve requirements haven’t restricted lending for decades. It’s why they’re zero in most of the world, replaced by finer-tuned capital and liquidity requirements. (And deposits != reserves.)
No that’s just an asset swap. There’s no aggregate balance sheet contraction. Now bankruptcies on the other hand are very much debt deflation as is loan repayment.
Some states are looking at or implementing new mandatory Insurance programs nursing home care, but these are far too late for Boomers to pay into them in a meaningful way
This has not stopped Washington state, for example, from allowing Boomers to benefit from these programs without paying into them in a meaningful way.
Some nursing homes specialize in medicaid patients, which isn't much different than a government funded nursing homes IMHO.
From the generation that brought you Ronald Reagan, boomers will have no trouble bankrupting the youth to pay for their entitlements
The age groups that Reagan won were the ones that are (predominantly composed of, because the categories don't perfectly match generation boubdaries) Silents and older. The Boomer age groups were tied (22-29 went 44 Carter, 44 Reagan, 11 Anderson) or for Carter (18-21 went 45 Carter, 44 Reagan, 11 Anderson.)
The generation(s) that brought you Reagan are, for the most part, dead.
And I say this as a boomer myself.
The Boomers were in their prime working years when the Silents under Reagan did the US’s biggest tax burden shift onto them, and cut their expected benefits along with it.
What are you referring to, specifically?