THE WOLF STREET REPORT: Free Money and the Shortages

Enough consumers, flush with free money, suddenly eager to pay those high prices, particularly for big-ticket items they didn’t have to buy. Magic Mix (You can also download the WOLF STREET REPORT wherever you get your podcasts).

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  151 comments for “THE WOLF STREET REPORT: Free Money and the Shortages

  1. Michael says:

    It’s a good time to buy only essentials. When the dust settles there is going to be plenty supply and no buyers.

    • andy says:

      Agree. The history is full of examples of plenty supply and no buyers.

    • Sams says:

      Quite often when famine hits, there are supply but no buyers. It’s a price ting, the supply side price and buyer purchasing power do not meet.

      A price drop if there is plenty supply may not be the outcome, providers trimming capacity to meet demand is another possibility.

      • Joe Saba says:

        surely more stimi will take care of that problem

        • p coyle says:

          when famine hits there might be sellers. don’t count on it, and don’t count on them being friendly.

        • Sams says:

          History show, maybe not. The problem, the prices rise to catch up with the monetary inflation. But those that have plenty of jewelry, silver cuttlery and the like may fare better.

      • rivereddy says:

        Are you talking about the situation where, for example, farmers would rather destroy their crop than sell below their cost of production?

        • Sams says:

          One possibility, or they could sell to someone else somewhere else.

          Or that the prices just make supply balance demand. The farmers find the price point where they get everything sold at maximum profit.

    • Old School says:

      The current system is built on confidence mostly. Government spent nearly all of society’s net savings in last 18 months to jump start economy and build confidence.

      I am a little sceptical but it’s about all they have got as a tool other than be like Japan and just keep buying up all financial assets.

      • Augustus Frost says:

        Yes, except Japan doesn’t have a massive trade and balance of payments deficit. Their population is aging and shrinking but I’m not convinced it’s as bad of a problem as the conventional thinkers in the economics profession claim.

        Nothing grows to the sky. Perpetually attempting to increase the population to generate “growth” and keep old age social programs solvent is just another Ponzi scheme.

        Japan would have been better off allowing a temporary deflationary depression back in the early 90’s. If they had, the pain would have been over a long time ago and possibly some of the factors contributing to low birth rates would have been ameliorated, like an inflated cost of living from too much debt.

        The US isn’t going to be able to follow in Japan’s footsteps like some others seem to think. Aside from being a creditor nation, Japan had the benefit of being the only major economy in a bubble and the option of exporting it’s way out of the worst of it.

        Today, most of the world (measured by GDP) is in the same boat as the US, the US economy is currently too large to get bailed out by the rest of the world and even if it wasn’t, this country doesn’t produce and sell enough that anyone else either needs or wants.

        And no, there is no option to borrow and spend your way to prosperity because debt doesn’t equal wealth and the rest of the world isn’t going to accept USD forever so that Americans can have better living standards than most everyone else either.

        • Wisdom Seeker says:

          Re: “Nothing grows to the sky” – Sadly, in a fiat-currency world, prices WILL grow to the sky as the currency falls to nothing. The only question is how long this takes.

        • Jon says:

          USA can stay prosperous as long as they can print trillions

          FeD can print trillions as long as usd is reserved currency.

          I don’t see USD being dethroned for 5 decades or so

      • historicus says:

        Old School…
        Confidence…as you say
        Confidence that the Fed would not promote inflation but FIGHT inflation and stand to their “stable prices” mandate.
        Confidence that the Fed would not intentionally hurt savers and holders of dollars….
        Confidence that the Fed would promote moderate long rates rather than immoderate all time, 4000 yr lows in long rates.

        It is incumbent on every generation to pay their own debts, out of respect for those who come behind them……that has been tossed to the wind. The financial “environment” has been polluted…does generation x and z and all the others know?

    • Kathy says:

      And an excellent time to sell your used stuff for a fair price, like 20% of new, plus tax, especially relative to shortages and high prices.

      We cleared out our storeroom of things we thought we might use someday–realized that’s a “pipe dream”–got not only new storage space, but a couple thousand in cash. Buyers saved a huge amount. It’s environmental too, reusing things that we mostly got for free.

    • RH says:

      Amen. Reports of massive insider selling, aside from tapering and the evictions, should make the wise stay liquid. Unfortunately, acceleration of inflation places risks on holding US dollars.

    • Wisdom Seeker says:

      Have to disagree here. I think the “free money spigot” can and will stay on a lot longer, since the political will is not there yet to turn it off. In the meantime, prices for many things may double, as they did in the 1970s.

      So I am still in “buy anything you know you will need, as soon as you can; don’t hold dollars” mode.

      • George says:

        WS / Your mode is the exact basis for hyperinflation. And I think you are not alone.

    • TheFalcon says:

      In 2006 it was best of luck to you to find guys to do that home remodel, and if you could find them you better be prepared to pay through the nose.

      In 2009, I got the remodel done for 60% off. Also got a fabulous deal on a car in 2010.

      Patience.

  2. Swamp Creature says:

    I don’t know what consumers Wolf is talking about. I’m certainly not one of them. Not flush with any free money. I’m not buying any big ticket items period. Not even fixing things that are broken unless they effect my ability to earn money and operate my household. Inflation is wiping out my standard of living and quality of life. Cashed in some change at my local supermarket Coinstar machine. I do that once a month. The commission went up from 11.5% to 12.5%. What a con job. With the hurricane in Louisiana knocking out the oil rigs look for the price of gas to top $5/ gallon.

    • Anthony A. says:

      It’s really more of an issue if the refineries are down due to power outages since it takes a good bit of time to get them restarted again. The rigs are offshore. I hear the all power is out in New Orleans and Jefferson Parishes. Fuels from the refineries are shipped to distribution terminals by pipeline so if power is out nothing moves.

      • Realist says:

        What about the plants producing the raw materials for plastics ?

        • historicus says:

          Transitory…
          everything is transitory…

        • Anthony A. says:

          Those chemical plants rely on natural gas as feedstock. Plus *most* plastic scrap is recyclable. You don’t need plastic to heat your house, make electricity or run your car.

        • Petunia says:

          The chemicals for the plastics all rely on the refineries producing the grade of oil they need. Most of those chemical companies are along the Mississippi River, not NOLA.

          I did hear they closed a pipeline out of Houston that goes to North Carolina.

      • Keith says:

        Another way around the Coinstar fees is to use the coins at self check out. The machine counts it and it takes no time. They are everywhere and can be used for essentials, like food.

        • RightNYer says:

          I’ve done that before, but only when the store isn’t busy. Don’t want to be that guy holding up the line.

        • Catxman says:

          AFAIK China has dispensed with cash and moved into the cashless society. They’ve also got security cameras everywhere, not just Xinjiang. Those two can be seen as connected.

          With cheap computer servers and computer cables you can realign society in the direction you want it to face. Economically, it becomes harder to cheat the government (something the Chinese are paranoid about from their history). Politically, it becomes harder for a coup to go down.

          And political economically, it functions as a rudder on who runs the economy’s ship of state.

    • RightNYer says:

      There’s no reason to be paying Coinstar fees. They have fee free counting if you select a gift card instead of cash. There are plenty of big name stores on the list last I remember.

      • Michael Gorback says:

        True dat!

        If you take the gift card the vendor of the gift card eats the fee.

      • Paulo says:

        Can’t you roll the coins and take them to a bank at par?

        Totally agree with cutting back, although I did order two pairs of hiking boots today that were 40% off the usual retail price. I just put them away in the cupboard until I need them. This now gives me an old pair for work, one for good, and now two in reserve. Free shipping, too. :-)

        • RightNYer says:

          Yes, but rolling coins is one of the most mind numbing things ever. I’d rather take it to Coinstar and get a gift card to Amazon or Home Depot or some stores that I’d spend the $ at anyway.

        • Swamp Creature says:

          Paulo,

          Rolling up pennies and nickels takes more time than the value of the coins. I’d rather pay the Coinstar fee. I also noticed a lot of the coins are being kicked out. They must be counterfiet coins.

        • Russell says:

          Coinstar should be paying us to return the coins to circulation. Last time I was in the bank (hardly ever do that anymore) they had a limit on the number of rolled coins you could purchase.

          I bought a few rolls just for fun so my kids could sort through them for dates, mint marks, etc. Keeps them busy for a while. They always think they are going to get rich!

      • doug says:

        or join a credit union? At least mine has coin counter and no % taken out.

      • Xavier Caveat says:

        But if your $4.01k is of little substance, what’s losing 50 cents in the bargain by using Coinstar?

      • Keith says:

        Self checkout machines also work. Benefit with them is you are not stuck with a card that works only in certain locations.

    • andy says:

      I gave up the car. So $10/gallon seems about right.

    • Beardawg says:

      SC

      I agree. It seems like the stimmies were a long time ago. Maybe people are using home refi $$ to buy stuff and services now ??

      The rent moratorium freeloaders represent too small a sampling to be driving demand this much.

      • Wolf Richter says:

        It’s not just the stimmies. It’s the $800 billion in PPP loans, it’s the extra unemployment benefits, it’s rent and mortgage payments not make, it’s the Fed’s asset bubble gains, some of which are now getting spent…

        Here is more detail:

        https://wolfstreet.com/2021/08/25/the-most-monstrously-overstimulated-economy-markets-ever/

        • MCH says:

          The impact of C19 and the myriad of idiotic policies that came from it will be felt decades from now. The overstimulated economy is going to have a significant impact in the next few years, and that’s going to ripple out far beyond that.

          I think one of the lessons from this will likely how to be less interventional when it comes to monetary policy, and it’s going to hurt when such intervention become necessary.

          The funny thing about the supposed independent Fed and the independent government is that they keep putting up these trial balloons to see how the market will react… the problem is that their focus is on the stupid stock market, and it’s just so backward.

      • Swamp Creature says:

        I heard an ad on WMAL radio here by Network Capitol Funding based in Irvine California, for a no cost cash out refinance at 1.75% They recommended using the funds to buy an investment property to rent out. They said it was a once in lifetime opportunity.

    • Wolf Richter says:

      Swamp Creature,

      Didn’t you say a minute ago that you spent $8K on a tooth implant? That’s consumption… big ticket item too (Ok, medium ticket maybe).

      • Swamp Creature says:

        Wolf,

        I didn’t have much choice. The infection was getting worse.
        What I got out of this was a tooth to replace the infected ones that were removed. I’m back to square one and very thankful for that. I don’t consider this voluntary consumption. Its more like a medical emergency.

        I didn’t even add all the pain that this procedure caused, and loss of work as I was on Opioid pain killers for a week.. I did it all without anethesia to save money.

        • Anthony A. says:

          I’m a wuss…..I sprung for the anesthesia for the tooth I had removed in May and the drilling and insertion of the implant stud. With my 10% senior discount, I’m out the door for $6 K. I really feel good about my contribution to the economy.

        • Wolf Richter says:

          Swamp Creature,

          I understand “forced consumption.” (I’m having to replace an implant now, lasted 12 years, GRRRR). But your and my oral surgeon is going to use the proceeds, combined with the proceeds from a few other patients, to buy a Tesla with :-]

        • Swamp Creature says:

          Anthony A.

          Actually the extraction was pretty painless. Why pay for the sedation when your whole mouth is knocked out? It was after the anthesia wore off that things got hairy. I took a heavy does of Oxycodine for a week. Kept functioning although in a severely degraded mode.

          I’ve contributed $8K + $6K to the GDP.

        • MCH says:

          Wolf,

          at least you know it’s going to a good cause if he is buying a Tesla, imaging if you had TSLA stock, you’d be indirectly contributing to your own stock price.

          Life is funny that way.

      • Mike says:

        Haha when it comes to dental pain I’ll pay any price inflation be damned.

        • JessByChocolate says:

          This is how I feel about swim suits. If it keeps everything where it belongs & is flattering…any price is rational. Will pay a premium for cuteness if it comes with that too. Wouldn’t matter if it disintegrated in a week, required Kanye West level special handling, or even ironing :)

    • General Strike says:

      Labor is the source of all wealth. When the sleeping giant known as the worldwide working class wakes up the anachronism known as capitalism will pay for its crimes against humanity.

      • Old School says:

        I would argue with that. There is probably a top five list from wealth:

        1. Rule of law / good governance
        2. Skilled and motivated labor
        3. Abundant natural resources
        4. Deep capital stock and market allocation/management of capital
        5. Good infrastructure

        Anyone of those by itself isn’t very valuable.

        • Carlos Leiro says:

          Recursos naturales abundantes y a buen precio no hay.
          Entramos en tiempos de Dilemas, o sea elegir el mar menor!

        • ChangeMachine says:

          Come on, Old School! Don’t you know better than to argue with someone who says thing’s like “capitalism will pay for its crimes against humanity”? Straight out of that comic book by whatsizname. Karl Marx?

        • p coyle says:

          CM:

          as always, the poors will pay for the crimes against humanity that capitalism encourages. and, yes, the capitalists will profit from it somehow. they always do.

      • Auldyin says:

        @GS
        They better get a move on before the machines take over.
        Just sayin’

      • Roger Pedactor says:

        Define labor.
        Does Fidelity Investments produce Goods?
        Are ETFs goods?
        How about Goldman? JP Morgan?

        “Services Economy.”

        No the problem is that the U.S. is a massive black hole of consumption. Yet it makes what? Subpar cars? Kit cat clocks? GMO processed food?

        Look at the cars that are made: they are really assembled here. The parts are globally sourced. Mostly from China. The dirty parts at least. The stuff you want out of sight and out of mind. The picture hanging kits at Lowe’s or Home depot. The regulatory and labor loads to actually make that stuff here makes it impossible.

        The thing is, globalism, whether NAFTA or Pacific Trade agreement was extremely destructive not just to any logical economic system but to national defense. This is a stagnant economy that only looks like it has demand or is GDP growth because it is highly centralized.

        Terrible. What awful policy dating back to the 80s really.

    • Old School says:

      I pick out the quarters and most dimes and let them count the pennies and nickels.

      • Harry Houndstooth says:

        Old School-
        When you become Really Old School like me you will have belt coin dispenser (like the Good Humor man) that you wear anytime you pay cash….. no thanks, I don’t need to ’round up’. You wanna ‘Round Down’?

        • Old School says:

          I remember those things from childhood. Seems like when you paid to enter a ballgame or something where change had to be dispensed fast.

        • BuySome says:

          The real ones had a fourth tube for pennies..back when you could get a twenty-room mansion for under a nickel! And the clown guy selling balloons twisted into poodle dogs wore them, just in case you wonder why people may give you a funny look when they see you use one. Now where’s that Good Humor man when you need spend a dime and get change back?

    • Katy says:

      Mr. Swamp,

      Is there some reason you couldn’t just pay for groceries with the coins, or go to the bank, get free paper tubes, roll them and turn them in at stores that are still seeking coins, now that people got over the fear of Covid contamination on objects. ?

      • Swamp Creature says:

        Rolling up coins is a complete waste of time. I’m still in the workforce. My time is worth about $25/hour minimum. Its cost effective to use Coinstar even with the 12.5% fee. It would be rude to wait in a long line and waste the time of the checkout person counting coins. I’m surprised you would recommend this just to save a buck or two.

    • Mora Aurora says:

      Shortly after Canada stopped making pennies, I went into a local branch of the big five banks to enquire about cashing in several jars worth. They said my only alternative was to fill a special plastic bag (about twice the size of a freezer bag) to a red line mark on the bag and it would be donated to a cause.

      The precedent was set and likely the same fate is in store for nickels, dimes, quarters and soon bales of bills to be weighed.

      ‘Bring out your bales,’ donate your climate ‘change,’ help save a tree and prevent street littering!

  3. John Landau says:

    Wolf, a lot of people do need to buy cars because public transportation has been cancelled in most places since the pandemic began, and many people (me included) haven’t bought a car for ten or more years, and their present cars are no longer drivable. For Seniors, hard times have been in progress since at least the beginning of the Great Recession in 2008. There are a lot of old jalopies that are barely mobile on the road. There are a lot of them parked in the parking lot of my senior residence, including my own 2008 Honda which is in better shape than most.

    • Wolf Richter says:

      Here are some tidbits:

      1. There are 80 million cars on the road that are less than five years old. Those people won’t need to buy a car for another 10 years at least.

      2. The average age of vehicles on the road is 12 years, and a car that is 15 years old and well maintained is still in perfectly good conditions, and can be driven for many more years.

      3. The average transaction price of a new vehicle is now over $40,000. These are expensive vehicles that are being bought.

      4. Sure there were people that used to take mass transit to work and then switched to driving, unless they switched to working from home, which many did. But many of them already owned a car. There are not many cities in the US where you can get around without a car.

      5. If you live in Manhattan, and used to take mass transit, you’re not going to buy a car to drive to work because you cannot afford parking it at home and maybe not even at work, and you cannot afford the insurance either.

      • Educated but Poor Millennial says:

        Dont agree, sorry, almost everyone I see and know(ok 75%) dont want to buy cars they lease. So they will always pay the new car price once the return dqte is due. They are brainwashed that new cars don’t break as old ones and they want les headache

    • Auldyin says:

      @JL
      2008, that’s young, my 1967 Rover does everything I need and folks give me plenty room on the road because they don’t know what it is. Depreciation goes in the opposite direction as it gets older. Parts are fewer, simpler and cheaper. I can fit them myself but I never need to, touch wood.

  4. Auld Kodjer says:

    Giffen going gangbusters

  5. Depth Charge says:

    I think the massive surge in demand is over with. All of the statistics are looking in the rearview mirror. The money has been depleted and without future stimulus payments, it’s curtains. Per your charts you can see how quickly these things reverse course. Big spikes and big crashes.

    I was reading an article a few days ago that said semiconductor production and shipments were up 45% over a year ago. The automakers dug their own graves. They canceled all their chip orders in a panic move early on in the pandemic, realized shortly thereafter that they needed them after all, but were no longer able to procure them because they went to the BACK of the line. It’s not that there were fewer semiconductors available, it’s that they bailed on theirs and it was all gobbled up by other customers and they missed out. It cost them billions.

    They are probably lucky they are having a hard time producing cars. Demand from here forward looks extremely poor. Wages are lagging and with rents and house prices skyrocketing, along with fuel, new car demand is going to be cratering.

    • drifterprof says:

      DC – good points but so many Americans don’t see money as depleted when they can be careless about borrowing money for the big-ticket items. For dome interesting stats and graphs, search: finder car loan statistics.

      “Americans had $1.3 trillion in auto loan debt in 2019, according to an Experian study published in March 2020 — that’s an 81% increase since 2009. And Americans also owed more on average than a decade ago. By the end of 2019, they owed $19,231 on average — up 25% from 2009.”

      My intuition is that things would have to get really bad (some kind of Depression-level outcome) before the non-lower 30% Americans stopped buying ego-gratification unnecessary stuff (big diamond rings, platinum golf clubs, status cars, etc.). Generally that attitude is good for the economy, unless a cliff is approaching.

    • Wolf Richter says:

      Most year-over-year comparisons to 2020 are meaningless. In the spring of 2020, activity shut down. A 45% increase from nearly nothing is still just a little more than nearly nothing. This needs to be compared to 2019. But now demand is much higher than it was in 2019. So if production of chips is at 2019 levels, the shortages are going to be HUGE.

      • Depth Charge says:

        Wolf- semiconductors are the new toilet paper. Companies are trying to hoard by ordering way more than they need. This is only making the situation worse, as these allocations are pure fantasy. In due time there are going to be massive gluts, just like what’s going on with lumber.

        By the way, remember when you were yelling at me that there was a lumber shortage when I was trying to tell you there was no shortage? I was reporting what I was seeing on the ground level with my own two eyes – AS A CARPENTER – but you didn’t respect that. How’d that turn out? The carnage in the lumber market is epic, and getting worse.

        I am trying to find the article which was showing a massive increase in production. The point is that it’s not so much the shutdowns and associated production halts that were the problem, but the actual increase in demand due to the stimmies which the market was never designed for. All of this demand was temporary, unless there’s a bunch more free money coming. and the companies who are trying to fill that market will be sorely disappointed to find it largely doesn’t exist.

        You say that “A 45% increase from nearly nothing is still just a little more than nearly nothing,” but I don’t know where you’re getting this “nearly nothing” from, aside from just opining, because per “Statista” the global semiconductor market was $440.39 billion in 2020 vs $412.31 in 2019. The estimate for 2021 is $527.22 billion.

        I’m just razzing you a little bit. I love your data. Maybe you can find better numbers for me if you ever have some time. I have a hard time finding actual production numbers.

        • qt says:

          I don’t think Wolf was arguing that lumber price was not in a bubble. When you go from from 350 to 1500, this is not normal. However, looked at the chart below

          https://www.nasdaq.com/market-activity/commodities/lbs

          Lumber prices closed at $520 (previous session). Compared that to August 2019, which is $368. If Wolf removed the link above, just search for “lumber price chart nasdaq”. What he is saying is prices are still much higher than 2019 at comparable levels and date. Even if it’s not at sky high bubble prices.

        • BuySome says:

          Depth Charge…back when the alleged “lumber shorteage” was occuring, I simply looked from one of the road bridges over the big UP rail yards here in Oregon. Always full trains of 20+ cars waiting to be dispatched for points north and south (east and west in old Southern Pacific terms). On the flats, mill activity looked solemn, but there were often stacks of lumber sitting out (maybe already spoken for) and no shortage of logs in the yards. [I recently saw one smaller yard that apparently suffered a log fire, but that’s not a norm.] I expect a lot of this could have been distribution delays and the effects of stock piling from fears as an aftershock from the street struggles that went on. At any rate, it probably served to dump some old wood on panicky buyers who wore shorts a few waist sizes too big and in need of tailoring. Snip, snip. The only chips I can see are in the supermarket, and the shortage there is in the quantity they put in the bags. Even more waist sizes should be going down, not to mention waste sizes.

        • Auldyin says:

          @DC
          The lockdown led to a binge in laptop and other electronic goods due to zoom, WFH and all the smart durables W reported on. Car cos did backpedal on orders to some extent, expecting a slowdown but the chip makers switched to the other fields and are only gradually getting back in total. TSMC, who I have shares in, have announced a 10% ongoing price increase for bog standard chips and a 20% increase for advanced chips. Where they go everybody else follows.
          China won’t go out of their way to help anybody who is ringing their shores with a battle fleet. Taiwan is closely linked to China and SE Asia for chip tech.

        • Wolf Richter says:

          Depth Charge:

          Chip-shortage article coming. I’m a little out of my league when it comes to semiconductor technologies, but I can address it in general and dollar terms, including a chart of course. Get ready for a surprise.

          And this is what I actually said about lumber:
          https://wolfstreet.com/2021/05/05/lumber-scary-crazy-inflation-now-gets-passed-on-but-these-wtf-price-spikes-cannot-last/

        • ganmetv says:

          fascinating that the lumber prices have fallen so rapidly. i imagine that chips are harder to increase supply and will take longer to get back into balance. seems like every product is becoming “smart” and needs some processing power.

    • Old School says:

      Our real growth per Capita over the long term is nearly flat, call it a growth of 1%. That means real income growth has been and will be slow. Fed is trying to run nominal growth hotter, but does not it 6armake much difference to workers if wages and inflation are increading at same rate.

  6. Kenny Logouts says:

    Deflation.

    It was always transitory.

    People bought more than they’ll need for a long time of cars and electronics, and now won’t need them or be able to justify them for years.

    Fun times ahead.

    Used car prices will tank like 2008/9 all over again.

    • historicus says:

      Kenny …
      Deflation? you have a better chance of seeing Big Foot.

      • Harrold says:

        I’m already seeing price cuts and sales all over the place.

        Now that the evictions can commence, will rents go up?

        • Depth Charge says:

          What products are you seeing price cuts on?

        • historicus says:

          Up X%, then down X% – Y% (assuming Y<X) is not necessarily deflation….anymore than a down week in stocks is a bear market.

  7. David Hall says:

    A home care worker broke one of my kitchen cabinet hinges. I went online and found an engineering drawing for a near exact replacement. I had to buy 25 sets of hinges minimum. I got another worker to fix my cabinet door as I am recovering from surgery. I have too many hinges. I wasted money on extra hinges, but saved money in not needing to replace cabinets.

    • 2banana says:

      It’s actually pretty amazing that a manufacturing shop actually tooled up to make a whole product run of 25 hinges for a kitchen cabinet.

      I am amazed what sells on Ebay.

      Take a shot.

  8. historicus says:

    The Fed ignores the inflation…
    yet they continually point to “uneven” employment picture…as a reason to stay accommodative.
    WHEN THERE ARE RECORD JOB OPENINGS!

    The inflation is hurting working people.
    The low rates are NOT helping anyone who is unemployed in this record job opening situation.

    The Fed is misdirecting, intentionally.

    From today’s WSJ editorial..
    “He (Powell) didn’t mention that the burst
    of inflation so far this year has swamped wage
    gains for seven months in a row, that the White
    House last week raised its estimate for inflation
    in the fourth quarter to 4.8% aboveayear earlier, and that the New York Fed’s July survey
    of consumer inflation expectations for the next
    year was 4.8%. “

    • Old School says:

      Watched another interview with economist Steve Hanke. He said Fed is still in denial and inflation is going to be 6 – 9% by end of year. It wouldn’t surprise me if they start having an excuse for housing cost as that is the next thing to blow inflation out unless owners equivalent rent is totally manipulate d.

      • Depth Charge says:

        Never listen to what the FED says, always watch what they’re doing. They’re jawboning about tapering and expressing “concern” about inflation while continuing $120 BILLION per month in QE. That’s like a murderer expressing concern for the health of his victim while he saws their arm off. C’mon, man….

      • historicus says:

        OS…
        Curious how no questions regarding the quantifying of “transitory”.
        3 months, 6 months….at what point is it no long transitory and the Fed proven WRONG?

  9. ru82 says:

    stock futures are green. Big Hurricanes and the damage ialways ends up like a stimulus program. Disaster relief money will flow in an lot if house will be remodeled for free from insurance money and disaster relief money. Home Depot and Lowe’s will see an increase in revenue.

    • Old School says:

      You left off final link in chain that insurance rates will go up to replace insurance real money “float”. Broken windows not a net gain, but a loss after the short term bump.

      • Masked Ghost says:

        Won’t rising rates for insurance be included in the GNP ?

        Watch the GNP grow. A big plus for the economy. Wheeee…….

        • Old School says:

          The accounting of a storm is a good senior project. It might show some of the problems with GDP. Maybe it’s going to show as a loss of wealth on societies balance sheet. Definitely the insurance company pays out real money from their reserves.

      • Paulo says:

        Yes. My insurance rates are my biggest single yearly payout, even more than property taxes. Certainly, we have the fires this year in the west, but there are only 5? major underwriters and when they have to pay we all pay. It seems the whole SE of the US floods every summer if the news is to be believed.

        I have never had an insurance claim in 42 years of home ownership, and only one auto claim (for a fire). I have phoned my agent a few times over wind damage, etc, but with the deductible and future rate raises the claims were never worth pursuing.

        Look for a decline to cover as this progresses. It has already hit condos as they deteriorate, and will spread to coastal flooding and fire prone regions. And in flyover there are tornadoes and thunderstorm issues like hail damage, etc. Insurance companies prefer safe bets and cash flow for simple paperwork. Premiums are removed from productive economic growth.

        • Old School says:

          Warren Buffett does a good job of explaining insurance in his past annual reports. He has built up insurance reserves over time to something over a 100 billion dollars.

          People pay in advance and if insurance company manages their policy underwriting correctly people actually pay the insurance company 1% – 2% to hold their money. (Unlike a bank that used to have to pay you interest.). Insurance company gets to invest the money plus have a 1% – 2% tail wind to boost performance. One of his keys to having good long term returns.

        • Harry Houndstooth says:

          The second most important step in wealth accumulation (right after Elimination of Debt) is Self Insurance. Without General Re and Geico, Warren Buffet would still be in the textile business.

          Every insurance quote you get has a profit margin built into it.

          There is no good investment without risk. Self insure; drive carefully and mitigate risks.

        • Old School says:

          Harry,
          I tend to self insure a huge chunk of my risk and just set aside funds for that. Some insurance is mandated. I review car insurance results from Buffet’s company and have concluded car insurance is pretty good return for your money. Maybe it’s costing you 10% of your policy for them to pool the losses.

        • jon says:

          I am in San Diego and I am having hard time finding home insurance for my home because of fire hazard. Also, my home insurance has increased almost 50% from previous year by my current company.

    • Petunia says:

      The areas that got hit in Louisiana were still recovering from Katrina and the flood of 2016. Fema is hiking all the rates in the fall and even forcing some to elevate their homes or tear them down.

      We know people there and some have renovated, due to water damage, multiple times. The state needs to invest in water management but they don’t.

      I lived through 5 hurricanes in Florida without any water damage, only wind damage. Some of those storms dropped over 30 inches of rain in hours, and two hours after the sun came out, it was dry. South Florida spends a lot of money on water management.

      • Turtle says:

        “forcing some to elevate their homes or tear them down.”

        New Orleans and vicinity shouldn’t even exist, from a practical standpoint (IMO). It’s like Galveston, but worse. Catastrophe, rebuilding, catastrophe, rebuilding – and quality of life never even reaches average. Why bother?

        Florida is worth it, but Gulf Coast Louisiana? I don’t get it. Is it just because it’s “home” and that’s hard to let go? A lot of people did move to Texas and elsewhere after Katrina.

        • Old School says:

          Cities kind of hang on like that. It was very important city 200 years ago I think.

        • Ron says:

          Where most of oil is processed

        • Petunia says:

          Louisiana is a very interesting place. It has a culture all its own.

          Someone I know lived there a few years and then moved to Texas. He called it moving back into the United States. I knew what he meant.

        • RightNYer says:

          Yes. AS an example, when people say “American food,” they generally mean what was originally UK bar food. But Cajun, as a cuisine, is distinctly American.

          It’s really the only one I can think of. Everything else is a derivative of some other country’s cuisine.

        • Auldyin says:

          @P
          “Louisiana is a very interesting place. It has a culture all its own.”
          Long term, I think, getting back to individually managed self contained states will be your salvation from all the current distopea. People could pick the lifestyle they liked and move away from conflicts and you could dump the military, industrial complex.
          Small countries like UK have difficulty doing that, although Scotland, Wales and Ireland have pipe dreams of doing it.
          “Small is beautiful” Schumacher. Just sayin’

      • Swamp Creature says:

        After this hurricane people may find their homeowners ins premiums higher than their mortgage payments in these areas.

      • Ethan in NoVA says:

        I think the South Florida ground is limestone? So the water might percolate into the ground a bit more easier than whatever New Orleans has. Not sure if that helps but it might.

        Plus sweet sinkholes, and caves.

        • Petunia says:

          South Florida has water management districts that can move water to retention ponds and beyond. It cost a lot to build and to maintain, but it does the job. The locals refer to it as an alligator superhighway, and it is. No lake, pond, or waterway in Florida is alligator free.

  10. Ed says:

    https://fred.stlouisfed.org/graph/?graph_id=137388

    I suppose the velocity of money, as indicated in these charts, is the reason to think it might be smart to plan for more inflation. Paulson talked today in an interview about how most of QE was recycled back to the Fed but that the situation changed in early 2020 when the pandemic hit . . . as Wolfstreet has been pointing out too, I know, but the vertical lines in those charts make a case.

    • historicus says:

      The velocity of something that is made larger in such magnitudes is tough to move up.
      The calculation of velocity puts the money supply in the denominator…thus, with the Fed rampantly upping money supply for a year…..the velocity can only get smaller….for now.

  11. joe2 says:

    Hmmm. Government printing of money and distribution in the real economy increasing the money supply leads to inflation of real things in the real economy? Who woulda thunk it?

    Government printing and distribution in the banking economy only led to inflation in the banking and investment economy – scorecard settlement paper profits.

    I wonder when the paper profit guys are going to realize their banking realm money is the same as the real world money and lock their paper profits in by buying real assets? I wonder if that will increase real thing inflation.

    Have you ever bought something at 2X the asking price because you knew the seller was “uninformed”?

    • Old School says:

      I think some of that is going on with real estate, art, gold, land and crypto. I have never seen so many older money managers say you should have ‘X’ percentage in gold. Marc Mobius the emerging markets guru is saying 10%. Some say 25%. Buffet still days you don’t need it.

      • Bobber says:

        There is nothing safe to buy in this everything bubble. All you can do is own a little of everything and hope you come out better than the next guy.

        25% gold strikes me as heavy. It’s a speculative asset that can have unusual price movement over a person’s investing time frame.

        • Depth Charge says:

          My local coin shop is now paying LESS than spot for silver. Boy, that was quick. All of those people who “backed up the truck” while paying record premiums have lost a fortune, on paper at least.

        • Old School says:

          Best thing to buy are history books so you can see how it all is going to end. No one really knows how, but it has never ended good before when the central bank kept the drinks flowing too long.

        • Ron says:

          Gold has increased 9% for 20 years

        • Apple says:

          Silver is down about 14% YOY.

          Gold has not appreciated any meaningful amount in the last 10 years.

        • joe2 says:

          Old School
          History books and drinks. Now there’s some entertainment while watching the news.

          So sad — we coulda been contenders. But stupid happens. I think there must be a Conservation of Stupid Law. But the root is really fear and insecurity. What has everyone got to fear? Maybe fear of missing out on experience, but most do nothing to obtain experience. We are all going to die in the end. Make peace with it.

        • Gilbert says:

          All these PM haters! The $3/oz AU I paid thirty years ago has treated me just fine.

      • Xavier Caveat says:

        I’ve been investing in aluminum futures that includes 72 ounces of barley soda.

        • VintageVNvet says:

          Good one XC,,, might be a tad too far out/too tangential for this crowd though…
          For my own satisfaction, investing in 750s and 1.75s of the type of tequila preferred, and ASAP,,,
          And only in the very solid glass those come in these days…

      • Swamp Creature says:

        During the great Depresssion from 1919 to 1933 every single investment went south. Diversification didn’t work. I believe everything will go south again. I heard from a friend that had family grow up there that farmers in Hawaii were the only ones that did well during the depression. They were self sufficient and unaffected by the Wall Street crash. Another resilient investment was sewer treatment, and septic tank companies, which turned out to be a good investment and source of steady income. So if you invest in s$it, literally, you may come out swelling like a rose.

        • Xavier Caveat says:

          That’s not really true, those who invested in US government bonds did fine during the Great Depression.

          If you had your money in one of the multitudes of banks that went out of business, it was a way different story.

        • Swamp Creature says:

          Xavier Caveat

          Agreed,

          Long term treasuries were also a good investment to ride out the depression. Not good now, because of the low yield and inflation risk of massive capitol losses. That’s why I didn’t include them. In other words, they are already a bad investment. Short term Treasuries are yielding 1 basis point. Another bad investment. I stand by my statement, everything is going south or has already has gone south.

          There is “nowhere to run and nowhere to hide”

        • Old School says:

          Long term government bonds did well during depression. It’s not as clear cut this time as dollar isn’t anchored to gold. Some think we have one more down cycle of the dollar being the safe haven with long term bonds with interest stripped will return 60% when yields collapse, but it’s too risky for me.

        • VintageVNvet says:

          Similar to others on here saying so, SC,, you are not correct, and for several reasons:
          ”THE greatest depression” SO FAR, was from ’29 to the start of World War 2, in spite of FDR’s clear efforts to help the British earlier, NOT from 1919 to ’33…
          Many many places/municipalities/states used the drop in costs to increase building of many facilities PRIOR to the federal guv mint using low and lower wages to build bridges, etc., etc. , via the WPA and other programs.
          Seems very likely WE will be getting back to those kinds of programs sooner and later, eh

        • Swamp Creature says:

          VintageVNvet

          That was a typo. Meant 1929. Good paying Jobs were also hard to find. My grandpa worked as Trolley captain in Brooklyn N.Y.C. Kept working right through the depression. Transportation jobs will survive.

        • Old School says:

          My dad was a kid on a self sufficient farm. He said depression didn’t really affect them. People bartered and shared more. He just says there was hardly any money circulating back then.

        • Apple says:

          There were no bond funds in 1929. You had to buy an actual bond from the Treasury Department auction.

          Not something most investors were able to do.

        • BuySome says:

          If you want a good lesson in the over exuberance of a spending spree terminating in 1929, just take a look at the history of the Norconian Lake Club that was built beyond Los Angeles (nearby Riverside had been the edge of civilization since the trolley car era and inti the early auto years, Palm Springs was too far out in those days and still a railroad destination). Much of what brought everything down was tied to a technological shift to radio, aviation, talking pictures etc. which was sucking money away before older investments had fully been exhausted. And there was a hell if a lot of real estate speculation that went hand in hand during that decade. But out in the real country, the decimation does go back to at least 1919. Brownsville Oregon, that charming hamlet you see in Stand By Me, was actually the third oldest town in the state and was a booming center right from the 1800’s. After the riverboat era, they went from narrow gauge to standard gauge rail. There was the Eagle woolen mills, lumber, mining, and one of the early creameries. Two hotels in the 1890’s. An opera house, which might relate to a silent flick cinema called Star Theater (later known as Grand, and maybe what became the mid-century Linn->now more famous as the Blue Point Cafe seen in the 1986 film). Point being, a 1919 fire took out some thirty wood structures and this town has never really recovered. The tiny 1906 brick building at the end of Main Street was the Bank of Brownsville, which survived and was always reported as healthy during a time when many small rural banks were shutting down…but it just disappeared from records around the time of the Great Depression. The Brownsville Bank was something started later and it’s hard to even locate any references to it. I don’t doubt that much of small town America took a beating while governments blew everything they could on new highways…good for some farms, good for truckers, good for tourists, good for cities and big banks..but absolute hell for many towns that formed on horse roads and rail routes. The party of the 1920’s did not pay off for a lot of people. And even the cities lost all that they had gained in manufacturing as it was pissed away over time. It may all be an effect of the technological changes if the times, but is it really paying off or is it just an endless hole of debts to explain why we build it. Improved individual healthcare ain’t about shit to economic health as everybody dies eventually…just a cold, hard fact.

        • Gilbert says:

          During the Depression my maternal grandparents owned a 500 acre multipurpose farm in Nebraska —and although they didn’t have much of in the way of income during that period they did not suffer. According to my dad the only reason they survived while others did not was because they did not have debt.
          I am certain they would be horrified at what is happening today.

    • Auldyin says:

      @j2
      The inventor of QE prof Richard Werner expected the Commercial Banks to invest the new money in SME’s which would have boosted small business and employment. The Chinese are on to it. Whereas, in the West, the big banks splurged the new money on asset purchases, leading to price rises in housing, shares, bonds, yachts, you name it, if you’ve got it, you get it.
      If this could be ‘corrected’, QE could actually lead to a renaissance of US small industry but I won’t hold my breath with the crowd you’ve got.

      • Wolf Richter says:

        “The inventor of QE prof Richard Werner…”

        I keep seeing this, but it’s not true. The Fed did QE during WW2, including yield curve control — until inflation hit 17% after the war and then it backed off. The Fed has a page on its website somewhere describing the episode. You might be able to google it. It’s an interesting read.

        • Petunia says:

          From my understanding, Prof. Werner simply coined the term QE, to describe what the Japanese were doing when their economy crashed in the early 1990’s. The strategy was already in use in Japan.

        • Auldyin says:

          @W&p
          I think this is probably one of these, we are all partially right things.
          As far as I can get tabs on it, Werner was involved in research and advice to the Japanese Govt after their big crash. He, sort of, formally defined QE as a theoretical economic means to enhance demand in a depressed economy. He is very focussed on SME’s from my reading. He’s a favourite guest on RT’s Renegade Inc. and ‘inventor’ of QE is an easy intro.
          Keynes general theory and Marshall were big things around WW2 and I would guess they maybe had a hand in UK &USA getting money into the economy by any means. They maybe stumbled on what we all now know and love as QE. The 17% is understandable but was there also gross distortion of incomes as we are witnessing now? The US also made huge direct Liberty Bond sales to the public, maybe that’s an idea for now??
          I wonder if they debate and discuss these issues in the FT or WSJ, not often I bet.

  12. The blip in durable goods CPI is probably temporary. I see this like the great Toilet Paper Run part 2. It never happened. Maybe Costco is having problems, because they negotiated the best price from supplies, now they get supply cut off first. The first indication that there is a problem with paper products the stores would stop printing coupons and running specials, and they aren’t. I will not be surprised when China goes to full trade lockdown. They will blame Covid, then a new leader will appear. Then the SHTF…

  13. Carlos Leiro says:

    Supreme Court Blocks Housing Eviction Moratorium…

  14. Rowen says:

    Financialization fooled us to thinking that monetary capital is wealth, but in reality, trillions of dollars can be created with a push of a button.

    Real wealth is industrial capacity, a function of human capital (labor and intellectual) and resources.

    • Kurt Frederick ZUMDIECK says:

      That’s all we have left – the FIRE economy. And its bastard step-child, the house-building industry.

      If the Fed stopped purchasing those MBS’s at 150 bil a month, the deflationary monster would swallow us all.

      The FED has to talk up inflation, knowing that everything is in a bubble, because the DEFLATIONARY un-wind always lurks.

      The whole MOMO needs to go forward. If not, going there will be going backwards,…. to 1987 values, for these assets, when things were last priced in relation to people’s wages, not there ability to access debt instruments.

  15. Swamp Creature says:

    What I’ve noticed is that nearly 50% of the consumer Items I have bought in the last year have had to be returned because they were defective. Nearly every electronic gadget I bought from Radio Schack is now in the trash can. I have a pile of 6 broken laser printers piled up in my garage which have been scrapped for spare parts. All this crap was made in China.

    • drifterprof says:

      Having been away from U.S. for so long, I’m surprised to hear the words “Radio Shack.” I just checked and evidently, it rose from the dead in online form?

      For me, Radio Shack was always mostly hype and crap overpriced products, except when you needed specific electronic parts. Being in a Radio Shack store usually gave me a queasy feeling of rip-off nickel and dime stuff.

    • Sams says:

      There must be something going on with quality control to goods destined USA. Other places made in China is not necessarily crap quality. At least if you stay away from the cheapest possible from Wish and Alibaba.

  16. Swamp Creature says:

    Insurance companies like to play word games to avoid paying claims. If you have wind and water damage they say the damage was caused by the water and since you don;t have flood ins, you’re SOL. If there was no water damage then they claim your roof was old and not properly installed so they don;t pay up, or you didn’t fill out a form which they sent certifying the roofs age and condition. By the way, I just got one of these forms the other day. If you are luck enough to get them to pay for the claim, then look forward to having your premiums raised permanently.

    • Harry Houndstooth says:

      It’s Just Business.

      Self Insure.

    • Gilbert says:

      Not sure that is true. A friend is a higher up in one of the big insurance companies. He told me that it is not so much the dollar amount of a claim but the frequency of claims that dictates premiums. His advice was to only file a claim if it is for something major.

  17. Mrs Swamp Creature says:

    Bidding wars now hitting rental properties

    Because housing affordability has put a lid on home price appreciation the price inflation has now shifted to rents. First time home buyers especially have been priced out and have shifted to looking for a placed to rent in a good neighborhood. This had led to bidding wars on rents for rental properties. Its not unusual for a landlord to take dozens of applications and auction off the rental contract to the highest bidder after checking their credit worthiness. This data will begin showing up in future housing rental data.

  18. Swamp Creature says:

    Wolf,

    Appreciate the audio format of your presentations. Allows me to do other things while listening to them, instead of being glued to a computer screen.

  19. Pl’n’l says:

    You ain’t seen nuthin yet. Wait till $3.5 Trillion hits the streets.

Comments are closed.