Mega-policy decisions to boost demand. Now mega-consequences. (You can also download the WOLF STREET REPORT wherever you get your podcasts).
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a Staten Island pizzeria posted its purchase prices for food, dinnerware, boxes, etc. — all went up 50-200% Y.O.Y.
You’re not seeing the big picture. Elon Mask is about to solve world hunger. And with only small fruction of his net worth.
you mean elon’s OPM net worth
he is poster child of wealth tax(needed for those like him)
Even his total net worth many times over is not enough to solve world hunger.
If it were that easy, Bill Gates would have picked up that cause instead of universal vaccination.
We don’t have a resource problem, we have a distribution problem.
Solving world hunger would mean dealing with fundamental aspects of the human condition and capitalism, something I don’t think the Winners crowd here would appreciate too much.
Wait for it. Tesla adds like $100 Billion to market cap every day. A new Tesla billionaire is born every day.
True, it’s not a resource problem.
Solving world hunger would mean dealing with mountains of corruption and layers over layers of inept bureaucracy.
Long DJP
Are the feds ever going to raise interest rates? Are we ever going to see the mortgage forbearance end ? Will we have higher inventory in the way with over 850,000 mortgages that have been given forbearance ? What happen to what goes up must come down ?! When and where is the down ?!
Nope, we only know up and up. We have been conditioned to only think of the positive.. Anything resemble GFC or the great depression might as well be from a thousand years ago..
FED and our government will never let things get that bad again right?
The funniest thing in this narrative is always the “they won’t let that happen” part. As if they have any means to stop a collapse when it happens.
If we are going to crash because of high inflation, this cannot be fixed with more money printing. Even a child can understand that.
Printing can fix anything. The real issue is eliminating arithmetic bookeeping and requiring floating-point exponential accounting.
@Lisa – LOL. The next “Y2K bug” will be frantic software patches to allow systems to handle prices in billions and trillions and quadrillions!
If your company’s software isn’t wired for quad-precision floating-point you’ll be BK when your pricing software runs out of zeroes…
The Fed likes inflation. So if they let it run on the hot side then assets like houses may plateau?
Housing to fall need liquidity to dry up via the FED not buying MBS or tapering a lot. Rising interest rates will also limit liquidity.
Double or triple mortgage rates. See what happens with property prices :)
Bring it on! 😀
That was a brilliant synopsis of what the fed has done in the last 20 months. Any thoughts on what folks should be doing investment wise to hedge this catastrophe they’ve put on us? I figure those with hard assets are going to do well, those without are going to be left behind. The middle class is hosed.
The real question that needs to be answered, though, is why the Whitehouse is playing this off like it’s not a problem? It’s obviously a problem. Reminds me of Baghdad Bob, the way they’re dealing with it.
Perhaps there is a faction among our fearless leaders that believes starting a war somewhere, anywhere, might both distract from and solve the problem….history tells us so…
With modern Western leaders being so Woke, Communist China could well attack and invade the Sovereign nation of Taiwan.
They already did similar to the Sovereign nation of Tibet and the West did nothing.
No need to invade a naval and air blockade will be enough to take Taiwan which is not in international waters but well into Chinese territory.
An ideal time to carry out the serious financial crisis in China elsewhere.
1. Tibet has no oil, WMD ;) , drugs or any product other than prayer wheels.
2. You can’t get an aircraft carrier, Marine division, or nuclear sub anywhere near Tibet.
3. Parachuting into the Himalayas is a great alternative to jumping off the Brooklyn Bridge if you have a deathwish.
So, there was nothing that could have been done, even if the US had had a reason to.
Of course there was if there was a will and no Yen donations to politicians.
Kick China out of the WTO.
Remove favored nation status.
Slap them with huge tariffs
“Bridge if you have a deathwish.
So, there was nothing that could have been done, even if the US had had a reason to.”
Ukraine would be easy as well. We’ve done nothing about Russian take over of parts of the country. And Russia wants all of it.
Since the Ukraine is next to Russia, and Taiwan and Tibet next to China, how is the West’s business anyway? Think Western governments need to concentrate on problems at home for a while.
All historians know that when China is strong, Tibet and Taiwan are part of China. When China is weak, they are independent. No moral issues, no right or wrong. Just strength and weakness. Very simple.
Most of the supposed “middle class” is actually the working class or working poor.
CNBC had an article on it last week where they correctly described how most define themselves as middle class.
By any sensible standard, economically middle class is more than just income and certainly more than anyone who makes the median household income.
The middle class used to have something more than income. They had savings and other things to pass on to the next generation. This includes real estate, savings, investments, valuable household items, and family heirlooms. Also, middle class people did not have to mow their own lawns, repair their homes, or do a lot of other things that were the job of tradesmen.
You’re right about how “Middle Class” traditionally had a wealth-based definition, rather than just being some segment of income.
But I strongly disagree that “middle class people did not have to mow their own lawns, repair their homes, or do a lot of other things that were the job of tradesmen.”
It was precisely because they did their own lawns, didn’t hire tradespeople, and kept their expenses low generally that most of the Middle Class were able to accumulate wealth.
In the old scheme, “Lower Class” had expenses >= income, never accumulated wealth, and therefore couldn’t retire.
“Middle Class” had income > expenses, and were accumulating wealth to live off in retirement.
“Upper Class” lived off inherited wealth and never had to work.
In that old scheme, income/lifestyles was distinct from wealth, so one could still be “Lower Class” while making $1M/year, if expenses were equally high. And one could be Upper Class on only $20K/year, if indeed they lived modestly while still refusing to work.
To account for both lifestyle and wealth-accumulation, there was a matrix. Lower Middle class had more modest lifestyles than Upper Middle Class, but both were heading for retirement. There was a Lower Upper Class as well, with a canonical example being the British former-aristocracy whose fortunes had dwindled. And you could be high-lifestyle Lower Class, like doctors who spent every dime and failed in their investments, or child actors (or lottery winners) who got rich too quick, blew it all and wound up broke again.
That system had a lot of merit. But politicians needed tax donkeys based on income, so they started calling anyone with a high wage income “rich”. (And no doubt the income-tax-sheltered, capital-gains-and-dividends ‘low wage income” Establishment didn’t want the “tax me” target on their backs…)
There was a thing in the Onion called:
“Study Finds Gap Widening Between Rich Pets And Poor Americans.”
It is very difficult to position yourself for this, because although a collapse cannot be prevented, the government/ central banks will still pick the winners and losers.
In the past they have always picked property and stocks as the winners, but that leaves the majority of the population absorbing the loss, and it seems to me we are now arriving at a stage where people simply won’t have it anymore.
Personally, I have recently added to my gold stack and will be adding a bit more this week. It seems less bubbly than everything else and I do see a monetary role reemerging now that private currencies are taking off.
Combine that with China (and some others) banning crypto while fiat money is going to sh!t… so how do these guys want to get paid a few years from now? I think within the complete chaos that is coming, people will rediscover the thing that has worked for 5000 years.
But, this is all speculation and I’m certainly not “all in”. But yes, I have a decent sized tail-hedge in the form of gold (and some silver too).
Strange as it may sound, cash may also not be a bad place to be at the moment. I expect most things with long duration to get hit hard (most stocks at current valuations are also very long duration assets). Even your decaying fiat money will buy a lot of those after this falls apart.
I’ve opened up an account with another bank here in Canada, to play the deposit insurance rules.
All there is in Canada are the Manitoba credit unions (supposedly unlimited) as the B.C. and Ontario credit unions will fold first when the residential housing market crashes. The CDIC insurance at the banks is pocket change if they even pay when the time comes. A hundred grand is one of the reasons so much money is stashed offshore in tax havens.
I am thinking that the asset classes that ran the most the last 10 years are not the place to be as they are at extreme valuations. Maybe cash and silver are possibilities as they have been terrible places to be for 10 years. Maybe foreign value stocks.
Junk silver. Bags of it.
Food shelter water
If there is a collapse, the government/ central banks will still pick the winners and losers. If they can. Depending on the severity of the crash they might not.
Great comment. Agreed that a big question will be “who” controls the government when the next crash gets serious, and what they choose to protect when assigning the Ponzi losses from the current bubble.
Now is a good time to prepare to be very nimble financially.
Need to be able to get out of debt quickly, if “they” choose debt-deflation.
Need to be able to get out of cash quickly, if “they” choose faster-inflation.
Need to be able to minimize expenses – and retain income that can keep up with the rest.
Could be a good idea to buy necessary durable goods now (if available at a still-reasonable price), to avoid getting pinched later.
The game is very different if your assets are real estate, 401K, taxable savings… or if you’re older, or raising children, or no longer working etc. But as long as you’re not boat-anchored to lead-albatrosses in the storm, you won’t sink.
Real estate is a tricky one. It is the ultimate captive capital, because it can’t be moved, so it is fair game. It is also where most of the “wealth” is concentrated, so from government perspective it is the low hanging fruit.
I also expect them to dump bonds on pension funds (another big pool of captive capital).
Debt deflation?
@Bob: There are two established playbooks for financial excess.
Option 1) Debt-Deflation – what happened in 1929 and 2008.
Credit disappeared via defaults and prices deflated. The telltale sign is when major governments start letting major companies go bankrupt for their stupidity (finally), and everyone else goes into a panic because they’re all strung out on interconnected webs of credit that start unraveling like a cheap T-shirt. Evergrande in China is the current canary in the coal mine for this scenario. The standard playbook calls for letting the worst offenders go down in flames, scaring the bejeezus out of everyone else, and then making “bailouts” to great fanfare which make whole the politically/financially well-connected while subtly screwing over everyone else.
Option 2) Faster-inflation is like what happened in the 1970s.
Supply constraints cause economic disruptions and inflation, and the standard money printing stimulus to alleviate the pain doesn’t work here, it will make things worse not better. The textbook correct solution is higher interest rates to reduce demand coupled with pragmatic policies to increase supply. However, price controls and rationing are politically more expedient options, but they also make things worse not better. Policy failure in managing this approach leads to hyperinflation, destruction of the currency and political revolutions.
Option 3) It’s possible that debt-deflation and faster-inflation will battle it out, like the unstoppable force meeting the immovable object. What if the bailout-stimulus triggers a political revolt and/or makes things worse not better? But that leads to more chaos than the Establishment can handle so I think they’ll choose one or the other of the established playbooks.
“Any thoughts on what folks should be doing investment wise to hedge this catastrophe they’ve put on us?”
Gold, silver, junk silver, land, rental housing, dividend paying stocks, international dividend paying stocks, timber stocks, utilities, mining stocks that bring anything out of the ground, REITS, cryptocurrencies, skills in fixing things, skills in making things, stockpile longer life essentials in the basement, make friends with like minded, make friends with farmers, move out of the places with not like minded, get out of debt, have cash on hand, collectible art, collectible cars,
And that is off that top of my head.
Or try starting a bank…it seems to work wonders for the people who create black holes of debt from very thin air!
I’d be looking for a run on the U.S. dollar if inflation takes off and the Fed keeps interest rates too low. Timing is everything but it will be the most one-sided trade in existence in decades when it starts next year. Better to be early than late.
Precious metals and the miners have been driven into the ground repeatedly – probably engineered by the Plunge Protection Team. Will they ever be able to get to their feet again let alone soar? I doubt it.
bob who cried wolf:
“….why the Whitehouse is playing this off like it’s not a problem?”
The present occupants certainly have no clue as to how to ameliorate the mess and I surmise are just praying that no collapse comes during their tenure; the other party operates out of the latest political insane asylum with less of a clue!
Too many “rules and regs” went out the window post ’09 crash and too many financial/political cowards took charge. And, not to neglect the general public who were delighted that so many were saved just like during this Covid mess.
Business/consumer product supply has been changing for many years. The abrupt lifestyle changes during Covid plunged that chain into chaos from the overwhelming business transacted now thru the electronic systems.
The list of new products not available for all the various parts of the business economy (and consumers) is vast. Not every business is prepared to enter the “used” product (or salvage) markets to continue on to serve their customers. Those businesses that have some experience in that field will stumble along; those that are totally dependent on only new machinery/produce will see their enterprises choke on their own ignorance.
As Mr. Wolf reiterates, the “Great FED Giveaway” to the general financial part of our society has only exacerbated the problem.
How to return to “normal” (The Mean)? Lots of pain……lots and lots of it!
Hard assets which are not dependent on interest rates would do good
Assets which are leveraged using government subsidized interest rates won’t do better if the rates increase
You unpatriotic and un-American snivelling weenies, crying for the Fed to taper or even tighten!
Have no fear, this is America and my man J-Pow aka Superman will make a man of you yet by PRINTING ANOTHER 10 TRILLION! Direct deposit!
By the time this is all over, you’ll be trading SQUID-coin, praying to Elon, and eating cardboard!
U. S. A. !
U. S. A. !
U. S. A. !
So right- SQUID coin, Church of Elon, CNN’s Series on Benefits of a Dust Breakfast🙄🥜
Like Bob’s comment above – a great synopsis. What is interesting for me, from South Africa, is that there must be some special ‘messaging’ channels that keep all Central Bankers on the same ‘hymn sheet’ (probably straight from the BIS?).
In South Africa the Reserve Bank governor is also obstinately crying that inflation is ‘transitory’. It is as if he echoes the EU’s Lagarde, and the US Fed’s talking head.
More worrying is that the Reserve Bank Monetary Policy Committee in SA, towards the end of September, indicated they expect US money printers to start slowing down.
Here is the question: Are the monetary policy makers here downing the same magic money mushrooms, as the Fed & ECB, and, when the dollar debt bubble blows, what are Wolfstreet expectations for smaller developing economies?
I add a link to a piece where I ask whether the Kabul syndrome of imperial collapse will hit a US dollar close to you soon?
Yes, the fed is in charge of your central bank. All the other central banks look to it to direct policy. Breaking ranks means you don’t get dollars or credit. Read “Collusion” by Nomi Prins, to get a window into the world of central bankers.
She’s living proof when it comes to investing its better to be lucky than good. Like I said before anything that makes sense is probably a money losing proposition. She put a lot of money into gold at the start of this year and what should have been a correct investment or gamble has been rigged and manipulated in the other direction by the central bankers.
All Central Bankers are like children.
Nothing is their fault.
All problems can be blamed on something else.
Create the problem and then make it worse.
Make sure you have a second passport and get some (or most) of your assets out of the country if you can afford it.
I expect FX and capital controls to be widespread when the credit mania bursts.
Which country? this is a Global Everything Bubble. No safe havens.
Having your assets reside outside your country of residence would be challenging in a time of FX, capital and possibly import/export controls. Not to mention potential risks of expropriation in the event of adverse regime changes in the other countries.
Just read a wise article about delivery problems at ports caused by all this Fed money. Basically he was saying that there is no incentive to improve things because the Ports, Port Trucking Companies and warehouse storage( for the unloaded containers) are all making such great profits for having done nothing more than run normally, that there is no incentive to pay out money to clear the backlogs.
It is an interesting viewpoint and if only partially true it means there is no chance of things returning to normal for quite a long time. The result of Ports, Port Trucking Companies and Warehouses being able to charge what they want(in a country that imports everything) will result in deep, long lasting inflation.. Economics can be very simple sometimes……. ha
reminds me of this joke.
doctor 1 to doctor 2: you should double your prices.
doctor 2: but then i’ll lose half my patients!
doctor 1: exactly, but then you’ll work half the amount for the same money.
Congratulations…you’ve created an inflationary cycle that cuts your “same money” to half its’ value when you go to use it. And it gets worse beyond that point.
In the last few years:
Residential rents spiking 11-20%
People paying any price for a new car
Construction costs spiking 12-19%
Did you say 91% of total RE inventory in August and September was unfinished houses under construction?
Ports and truckers are slammed with demand for cheap plastic Christmas crap from across the ocean. No one I know does Christmas unless they are tricking their kids.
That demand, those containers so lonely waiting to come to a port, was pulled forward. Once everyone has everything they need they tend to buy less, even the rich. The blistering demand will definitely make things worse, but on which things? In what ways?
Sure, the tesla drivers will still buy organic skin care products in plastic bottles and dream of private jets and electric sheep.
I can’t see the future but I can guess as well as the next guy. I couldn’t imagine how many people left the “workforce” because they made money buying calls blindly forever. That took about as much of a skill as blow and hookers to prosperity. Maybe a lot of people dropped out of the workforce because they fell into destitution.
Wages are rising due to temporary demand instilled by monetary inflation. We are not dealing with temporary inflation but temporary demand.
My big source of wonderment is what if deflation is a monetary policy tool? What if induced deflation is a hidden monetary policy tool? What if these same Fed “officials,” who have been caught red handed front running their pseudo-governmental policy decisions, what if they are larping about inflation?
I don’t see demand holding up longer than it takes for bull market geniuses to fold.
yes i keep seeing articles on business sites saying that retailers are “excited” for the holiday season because consumers are flush with cash and will continue to spend no matter how much they raise prices. i can’t tell if they’re purposely lying, so as not to upset their investors, or if they’re delusional.
I think the people pushed off unemployment in the summer are mostly still unemployed and not counted.
I don’t think Xmas will be great this year because average people are topped out. Also, the big box stores that did toy layaways have stopped doing them, and have switched to payment systems that break up payments to 4 or more. Those payments start right away and you can’t pay in cash. This doesn’t work for the layaway customer, because they rely on paying with a Xmas bonus that won’t come until December. Those former layaway toy sales will now not happen until Dec and there might not be any inventory by then.
I normally buy makeup and toiletries during Xmas because there are special deals and products, but this year I’ll wait if the deals aren’t there.
Regarding housing/rent costs, the more expensive the cost of housing, the less money goes into the rest of the economy. Leading to product and services going out of business. I don’t know where these landlords think the rent money comes from, but it comes from the jobs in the product and services businesses, which will be closing due to no disposable income. The logical progression is the real estate markets will crash along with everything else.
i agree with you. people already splurged on flat screen tvs and other durable goods over the past 18 months. at some point, even the worst spendthrifts will think they have enough.
Well I’m personally guilty of buying extra candies for the kiddy train yesterday….didn’t want to have to resort to handing out beers in a rush. Turns out my precise distribution to each costumed beggar left a windfall of edibles that must be increasing in value exponentially….the stores were depleted of stocks, so don’t expect any 50% off clearance sales this year unless you’re in a town where rents are declining. That would be the Mars colony, right?
i’m guilty of that too. but only because my wife won’t normally let me buy candy…
Only Americans splurged, most other countries demand fell as everyone got poorer.
I have more respect for hookers than I do these banker scvm who caused this.
Prostitutes are only doing a job. The johns pathetically whining about how their wife doesn’t understand them, are more like central bankers and politicians. The john’s problem is the wife does understand them, like we understand that the central bankers and politicians are grifters, conmen and only out for themselves and the lobbyists.
Main problem I see with the Fed is they make economic calculation more difficult for real economy and gives advantage to Wall Street who understand ramifications of Fed policy before the rest of us.
Plus Wall Street is so large Fed has to tip toe so as not to blow up their leveraged positions giving them confidence they can front run Fed with leverage.
My question is now that you have price to sales of stocks at 3X normal and Zirp, how do you propose to grow an economy from here?
that’s the problem. supposedly, very high stock multiples are justified because earnings will grow into them. but when earnings supposedly “beat,” stocks increase in response. so the only way P/Es of 30-40 can ever be justified is if you think interest rates will stay low for the next 30 years. i find it hard to believe a collapse can be staved off that long.
Some years ago, I played around a bit with the Kalecki profit equation, putting in all the official data. It provides great insights into the relationship between things.
One of the things that shows clearly is where money accumulates. If the government runs large deficits or housholds expand their credit, this ends up as corporate profits.
This is exactly what we have seen in the past two decades (before the GFC it was mainly households going into debt and after that the government). From government side it has gone into completely batshit crazy gear in the past 18 months. So no mystery why profits are high.
Of course the opposite will happen if that credit expansion cannot go on (and rampant inflation could end it all). But most investors have never known another anything else. They will be franticly buying 10% or 20% dips with leverage and then get wiped out when 80% gets knocked off the S&P500.
astutely written. the government did this idiotic thing of dropping helicopter money out there while many small businesses were shuttered. so the “stimulus” ended up in the hands of large public companies. that’s why many people, myself included, think these are “peak profits.”
In that situation, they get growth by inflating prices, then telling people the inflation is less than what it really is. For example, if inflation runs at 6% and they report it at 2%, the 4% difference can be counted as GDP growth. They can do that for many decades before people begin to wise up. Frogs boiling.
Even on this board, I hear about people happily substituting goods and services with lower cost options, which gradually reduces their standard of living. As long as people have that ability, they’ll agree to a lot of financial injustice, even if they are the one’s suffering it.
Yes, that is how it works. But it appears to me that we are now reaching a point where people won’t have it anymore. See Wolf’s earlier post about wage rises.
Inflation now gets discussed among common people who experience it every day and central banks have lost all credibility by denying it. That also means that people will not TRUST them anymore to turn inflation around, so an inflationary mindset becomes entrenched.
Simple answer they have to kill the value of the U.S. dollar or eventually the stock market implodes as earnings fall due to inflation like in the mid-1970’s.
Policy decisions made to increase demand for goods made elsewhere. Why?
Braindead application of neo-Keynesianism and “wealth-effect”.
They don’t have a solution or continue to do more of what’s failed spectacularly anyway.
That is a very good question. It is stupid policy imo. Almost as stupid as printing money and expand credit and leverage to buy existing assets at ever higher prices, which contributes absolutely nothing to the economy but gives a (temporary) illusion of wealth, causing people to make bad economic decisions.
Central banks using laughably crude and simplistic models to flood the world with money to avoid an end to a vast Everything Bubble growing since the GFC? What could go wrong?
And about those Fed tools to curb inflation – what happens to the debt based speculation bubble and the economy when they raise rates?
i’m in the camp that thinks they’ll never raise rates or taper, regardless of what they say.
Jake W
Unless it’s the old banking trick of priting money and turning it into real assets as they take your house when interest rates go up……………
Why would rising interest rates have any effect on an established mortgage ?
outsidethebox, it wouldn’t. but if you have to move for whatever reason instead of staying put for 30 years, you won’t be able to sell for what you owe.
The average American moves more than 11 times in his life. Often you have to sell your house and move to another area to advance in your career or for family, health, or personal reasons. 60% of American couples get divorced. That’s a move for one of them.
roddy-great observation of metrics that are taken seriously by certain players…
may we all find a better day.
“Why would rising interest rates have any effect on an established mortgage ?”
Filed under: Get a clue.
I am in the camp that they will try to delay it, but politics are going to change things when the immorality of stealing people’s savings to hand out to billionaires for green new deal causes driving to work and heating house to become unaffordable.
or even stealing middle class people’s money to give to the poor. both the poor and the rich are the ones who get this stolen money. and then the poor hand it back to the rich.
Good luck with that.
Interest rates will rise at some point regardless of what central banks do. Any attempt to prevent it will cause the currency to decline precipitously or crash where rates will rise dramatically anyway.
The FRB doesn’t have mystical powers where it can suspend reality forever.
oh no, i definitely agree with you, i’m just saying they won’t let it happen voluntarily.
They have done a dandy of a job being magicians and making it levitate. I trust they will have the staying power to keep the illusion going longer than anyone has time to yam it up on the net. They will be in the metaverse (hopefully without Facebook) and not care too much about the real world and the chaos it has going on. Snowcrash is a pretty good book about the real world being dystopic and the online presence being splendid
“Central banks using laughably crude and simplistic models to flood the world with money …”
In the U.S., the central bank is run by a lawyer that majored in politics, and probably never even bothered to take econ 101. I wonder if the heads of other central banks are equally unqualified?
Well as the Fed is a private bank, it is hard to know what the owners want to happen and who really makes the decisions.
She’s just the titular head with a team of ivory tower idiots voting what she should rubber stamp. Idiots afflicted with this:
“In his book, ‘Thinking Fast and Slow’, Princeton University Nobel Laureate, Daniel Kahneman, introduces us to the principle of Theory Induced Blindness – the adherence to a vulnerable belief, even though a counterexample may exist, about how something works that prevents you from seeing how it REALLY works. So once you have accepted a theory, it is extraordinarily difficult to notice its flaws, trusting instead the community of experts who have already accepted it.”
“It doesn’t matter how beautiful your theory is. It doesn’t matter how smart you are. If it doesn’t agree with experiment, it’s wrong.” – Richard Feynman, Nobel Prize winning physicist
Thing is, and the reason economics most definitely is NOT a “science,” proper, controlled experiments can’t even be conducted to confirm or discredit its theories.
Note to readers, there is no Nobel Laureate in economics.
It is the “Nobel Memorial Prize in Economic Sciences” by Sweden’s central bank, Sveriges Riksbank.
Explicitly not a Nobel Prize, it by a central bank where the FED is the biggest player.
People have this inexplicable habit of not believing something when it is contrary to their personal preference.
Especially when the truth hits them hard economically or threatens their “prestige”.
See Lacy Hunt discussion on the coming deflation.
PIETER,
Hahahahaha, people have been warning of the “coming deflation” for decades, and in my entire lifetime, there were only a few quarters of mild deflation in the US. The rest was inflation and rampant inflation.
But I would like to see a little deflation to make up for a smidgen of the rampant inflation we’ve had. But I’d be wishfully thinking here.
True price stability means that you have a little inflation followed by a little deflation followed by a little inflation etc. The ebbs and flows of long-term true price stability.
Huge deflation is just as bad as huge inflation, but in the opposite direction.
Both inflation and deflation create winners and losers. But true price stability is fair to all and is worth having and striving for.
Centuries ago, the ancient map makers used to draw dragons on their maps if they didn’t know what lay beyond a certain point. “Don’t go there, there might be dragons!”
The deflation boogieman is the present-day economists’ version of the dragon on the map. An entirely imaginary monster lurking around the corner if we dare allow price levels to fall just a tiny little bit.
The upcoming asset and credit deflation will prove to be very destabilizing.
Consumer price deflation won’t cause hardly anyone (literally) to postpone purchases for any meaningful time.
House and car, yes to a point. But then, housing is an “investment”. (The structure is actually a long lived consumer good. Like a tooth brush but with a much longer shelf life though requiring maintenance.)
Anything else?
Why bother? Any potential savings are overwhelmingly immaterial, assuming you even need it. Most of it is discretionary.
Lacy Hunt is an academic detached from the real world conditions. I listened to his recent Youtube interview where he came up with his deflation thesis from analysis of a bunch of charts and data. In that regard, he is not that different from the PhDs at the fed.
The only thing that confounds me is that everyone keeps trying to apply logical arguments of tidy models to an economy that lost all sense as far back as WWII. You cannot just manipulate the negative side of a balance sheet and end up with greater positive results in the long run. It will always come back and bite you in the tush, period. Covid has simply been the catalyst to advance that which was bound to come anyways. We have now taken human error and increased its’ velocity to the speed of light by sticking our national finger into the wall socket. Never had that experience? Try a light switch missing a cover plate in a dark room…(Disclaimer) I don’t recommend it, but it will give you a new view of what can happen with blind stupidity.
I’d encourage everyone to read a Medium article that just came out a day or two ago: I’m A Twenty Year Truck Driver, I Will Tell You Why America’s “Shipping Crisis” Will Not End.
Inflation will we with us for a VERY LONG time.
So the container-to-box economy has finally backfired. In the old world they used to occasionally just move a boxcar into some side yards, open the doors, and begin selling that stuff to whomever could pay the pipers. Now they’d rather just see it sit until the credit lines all dry up. Some plan.
No wonder our Transport Minister can afford to take a long leave. He knows there’s nothing he can do ;)
The buck stops where? Either with the .01% or China. There sure aren’t any of these people investing in production in the U.S.
America is like daddy’s gone and died. It’s a money grab by his children to strip his company, sell off the assets for themselves, not work, party and blow the dough, then get on welfare.
Cowboys, baby…with the vault doors jacked and the coinage shining. Cowboys, baby…pimpin’ out the neighbors while’a Holywood & Vine-ing.
sell off the assets for themselves, not work, party and blow the dough, then get on welfare.
It’s what the path is for most elderly. Sell the assets because they are too old or ill to work, pay the dough to the medical cartel, and get on welfare.
This is the expected path for most seniors. The system is set up to work just this way.
No party allowed.
China never put a gun on us. Our 0.01% hated the unions, so they all collaborated to lower the power of labor, and the rest as they say is history.
Monkey-it was a two-fer, exporting the costs of associated environmental damages and future regulation of same along with the exported manufacturing (while patting ourselves on the back about our nation’s achievements in environmental problems…).
may we all find a better day.
Squid coin cryptocurrency. From 1 cent (yes one penny) to over $2,500 in a few days then back to 0.0034 cent. Thanks FED and central banks!!!
Cryptos are all slot machines. Put your money in and pull the handle. If it hits, take the money are run.
The entire crypto space is one giant fraud. I always laugh when people thing SHIBA IN coin is a scam, but Dogecoin isn’t. Or Dogecoin is a scam but Ethereum isn’t. Or Ethereum is a scam but BitCON isn’t. None have any intrinsic value. It’s just straight up greedy, degenerate gambling at its very core. GREEEEED.
The entire crypto space is now “worth” $2.7T. It could actually become a systemic problem when that bubble bursts. At least part of the epic credit expansion has gone into this. All stimulated by the smart people running our central banks.
There are large vacuums under asset prices from the circular psychology you have described. I’ll add that assets being priced at the margin makes the whole scenario much more shaky. Crypto-diddlies are also priced at the margin.
Things occaionally go bidless. Usually for fifteen minutes in the stock market. That’s when the vacuum is revealed and circuit breakers kick in until the dip buyers and PPT have enough time to get out of their themed onesies and plush PJs to whack on the buy button in unison with one another yet again. Monkey meet hammer.
The housing market is the most at risk because it is relatively illiquid and more likely to “go bidless” in a way that can’t be faked up by dip buyers on the margin.
I’d love to see some real price discovery and reasonable pricing of risk but I don’t see it happening except by accident in financial markets.
otishertz
wouldn’t that be equivalent to what we just saw with Zillow pulling away from the market. selling huge swaths at a loss? the big boy got his/her/it hand burned. enough to actually allow it to become public. Or maybe we all were just sold a bad story by MSM. who knows know
The people who run the fed’s position in society depend on labor being squeezed. Returns go to Labor + Capital. Once the returns are there it is zero sum.
Either inflation has to be enough to water down the raises while labor all-of-a-sudden decides to stop asking for more or they are going to throw the hammer down sooner than we all think.
That is correct. Since the Reagan 80’s and the WAR on labor, the only true corporate profits have been those ones squeezed out of bank/interest rate arbitrage and labor, which means that wages have been flat since then.
Right now because of demographics more than anything, (the boomers retiring in MASSIVE numbers), labor finally has the upper hand, see Wolf’s recent post. But that is going to all come to a halt in the next weeks.
The ECONOMY has stopped in its tracks – ominous silence out there.
Reminds me of the collapses in 2007-8. My joints were eerily quiet at the end of the month. People are tight again, now that all of the benefits have run out and the eviction notices have started coming. Landlords jumped rent on the ones who could pay. Energy and gas prices are WAY up. Student loans are gonna start up again soon.
Q4 will be ZERO. PROBABLY is negative already. Brutal winter.
Maybe revolutionary. People have nothing left to lose.
I was out this weekend running some errands both Saturday and Sunday, and I have never seen it so dead.
Boomers retirement will look more like sheltering in place. People keep getting hit by stray bullets in friendly PDX. Another one over the weekend.
If I wasn’t tall and crazy looking I would have probably been in at least three physical altercations going about my errands recently. People are getting angry and hostile. Any slight practically leads to a fight.
I try to remind myself to apologize and find common ground and diffuse situations. It usually works because people on the street don’t want to engage in unnecessary violence in public areas but I did have to ask a guy just today if he wanted to get shot.
It’s getting real out there. The aging homesteaders primping their lawns in lala land waiting for a grocery delivery will not be well protected by a video doorbell and complaining on Nextdoor website. People who have nothing don’t care.
“ Inflation will we with us for a VERY LONG time.”
Monkey,
It will have to be or else bad things happen…
The reason is fees…
This 70% consumer services and consumption economy generates a massive amount of fees for collection from federal, state and local governments…
Let’s fly to see Grandma…
So you leave your home where you pay tax on the Real Estate value and utilities as well as recording and mortgage fees when you bought it, hop in your car you paid sales taxes and registration on… stop and get gas and and pay the gasoline tax… parking fees at the airport… TSA and airport facility fees just to walk in the door… federal add on to the ticket… hop on the jet the airline paid landing fees to bring the jet to you…jet fuel tax… Air Traffic Control charges ( in Europe)… Telecommunication taxes on the cell phone you used to call Grandma to tell her you arrived… Tourist tax on the rental car and motel… Road tolls to get to Grandmas… COVID tax on on the dinner you took Grandma to as well as shelling out a tip for crappy food and service… paid for with a credit card the merchant adds 2.5 % to the tab… then Grandma passes away from food poisoning from the restaurant while you’re there, and to add insult to injury, she was wealthy and and has to pay a tax cause she’s dead…
Americans probably pay 700 billion a year in fees and that might be low… I figure about 2k a year per person population…
Reduce the amount of fees with a recession/depression and see what happens…
We saw that with the COVID shutdown…
Now imagine it permanent…
Gotta keep the wheel spinning… I’m sure you folks in Cali can add to that…
Taking a historical view, this is typical late stage empire. Expansion has ceased, wars on the frontiers are being lost, and the incentives for hard labor have gone. The rich and powerful have given up leading from the front, proudly paying their taxes, or risking their sons and daughters. The only remaining option for further power and enrichment consists of exploiting their own citizens.
Most people have little courage. They will accept any robbery or oppression by Government/the powerful as long as it’s administered a bit at a time, especially if they perceive they are in a numerical minority and might lose what little they have left by protesting.
Most of the courageous have already quit the rat race and made themselves largely independent of government. This removes the main instigators of change.
The only way the enslavement of the 99% will stop is if things come to a rapid, widespread crisis that triggers a majority protest, food riots typically. This is actually more possible than in the past due to very little food being held in storage by most people, and more complex distribution systems. The proportion of police and armed forces is also lower than in the past, and in the US a high proportion of the populus is armed, so physical oppression is harder.
We are nine meals from chaos. Forget interest rates and concentrate on the price of food and whether the trucks stop rolling.
Truckman,
Glad that someone is as pessimistic as I am. Nine meals from chaos? I think it is less, maybe six right now. Seems like everyone is too busy watching / bingeing on Netflix to see what is in their pantry.
The whole JIT system has stopped, so much of our wealth stuck off the coast in containers.
Our owners have hoarded all the wealth and STILL decided to raise rents. Cuz they could.
The velocity of money is right above zero and has been for awhile. Now, it is who is gonna flinch first of the big boys.
None of them (the big banks, hedge funds) believe that their own assets, underlying all of their debts, is actually worth anything, so they sure as hell dont believe that they other guys have anything worth taking, that isn’t rehypothecated 40-70-1000x times over.
So who do they target first in this coming-soon crisis – my bets are on Wells Fargo.
They will be the WAMU of the 2020’s, the provincial sacrifice.
Until central bankers and politicians fear for their lives, NOTHING will change.
I totally agree with DC in this but this wont happen. There is a reason we have over militarization of police and people are given pennies to keep them satiated with UBI like scheme.
Ever been to a Police shooting range? They are really bad shots, although still about 3 times better than the average gangster.
Their entire training focuses on one property at a time and only a few bad guys in it. If things turn generally nasty, the Police are very little use for protecting anything except the Governor and themselves, which is all they will do, and historically all they have ever done.
And the effectiveness of the military in controlling a revolt in a situation where most of the civilians are “friendlies” has just been seen in Iraq and Afghanistan.
I’m an optimist, by the way, for myself that is. For the rest I’m just a realist ;)
Has any large culture ever lived so far away from food sources as SD/LA/SF in Cali?
Well, there’s Arizona and Nevada for starters, throw new mexico in there too. Although most of the purest elemental evil comes from California, they do have a lot of fertile lands. I think they are the #1 agricultural producer in the US. Correct me if I’m wrong. The more north you go the more fertile land you will find.
Anyway, have a nice day, sorry to bother you.
No water simple
X, about 85% of the vegetables grown in this country come from the central valley in Cali. When I lived in Thousand Oaks, the nearby town near Simi Valley was famous for chicken farms. There’s plenty of food in Cali. And the fish from the coastal areas….outstanding!
The ancient Persians, and the Romans, were very distant from their main food sources. Some of the Central American civilizations were highly dependent on sophisticated agriculture and distribution networks.
The ancient Egyptians lasted longest as an empire mainly due to abundant indigenous agriculture, and you could argue the same for the rapid expansion of the British Empire.
Me, I can eat surf and turf with all the trimmings, and beer or wine, with under 100 food miles total. Which is not by accident.
Xavier Caveat,
Well, we live in SF, and it’s 1-2 hrs by car to rice fields, hop farms, citrus farms, berries, a vast array of produce farms, etc. in the Central Valley and near the coast (lettuce, herbs, spinach, etc.). If you eat produce and leafy stuff in the US, you have a good chance of eating something that was harvested in California. Oh, and I forgot about vineyards everywhere here, and olive groves, and all kinds of stuff. Oh, and I forgot about almonds. California dominates the global almond trade.
Growing food is a huge and sacred business in California and consumes the vast majority of the scarce freshwater. Food production won’t slow down unless the freshwater runs out (and thank god we had some huge rains recently).
SF is a food city. We love our fresh seasonal Central Valley produce.
What’s the closest food grown to SD, avocados about 50 miles away, and in LA oranges in Fillmore about 50 miles away, and in SF garlic and wine about 40 miles equidistant away from the City.
That’s more my point, that nothing is grown in places such as Orange County (now, why did it get that name?) anymore, fruit never wanting to pay property tax, so orchards got the ax.
Nothing wrong with giant food deserts as long as you can procure sustenance from elsewhere, so far-so good.
At the start of your message I was following. However after a bit of thought you realize that we in our generation are actually changing things on the massive type of level that couldn’t have happened previously. We as a species are pushing the envelop and edge of so many spaces it literally is mind blowing. We are exploring space in a fashion that allows almost normal people to touch space. We have an internet that allows people to view and see anything anywhere visually. We can order and have delivered sometimes same day anything you can desire. Translate languages on the fly. Work from your home depending on job. Have cars pickup and deliver you door to door. Almost have automated driving. Ad infinitum
Things are moving fast, and as quickly they are being abstracted onto the internet where speed doesn’t matter. The internet becomes a resting place for information, where it goes to die.
McLuhan said technology only extends our senses. Extending physical senses, by one definition or another, does not necessarily make one more smarterer.
All this abstraction of normal human faculties like memory, spelling, mental map making, utilizing the fabulous processor speeds of today, has produced the dreck of facebook, tiktok, onlyfans, pornhub, twitch, netflix – with google writing it all down in your permanent record, selling it to the government.
I’m not waiting on the Singularity. People are mostly too indoctrinated and uneducated to truly take use of any new technology.
My great grandma went on dates in horse and buggy in Manhattan 110 years ago. Humanity still took until about the early eighties to figure out how to properly put wheels on suitcases! I’ve always thought about this. Wheels on suitcases!
From Fred Flintstone till the 80s nobody could figure out how to properly place wheels on a suitcase. It’s dazzling how something so obvious could be missed for so long.
otis-but the time to implement smooth pavement everywhere on which to roll, that being laid across a multigenerational mental transition from a non-paved (your great-gran’s horse/buggy)-to-paved environment with declining baggage handlers (also, luggage used to be VERY expensive and not casually replaced when there was much less general travel-remember the gov’t had to extensively subsidize commercial air travel to get it off the ground-pardon pun…).
may we all find a better day.
Space is not what it’s made up to be. There’s nothing there except big round rocks and stuff on fire. And there’s no air! And no internet!
Since the start of the Industrial Revolution, the world has been changing rapidly for every generation. Every person who lived to their 70s in a developing country saw a world which had changed almost out of recognition from their childhood. The railways were just as staggering to a child who rode a pony, as the internet is to a child who used to get telegrams.
The point of education is to pass on to the next generation the skills and knowledge which do not change, the current state of changing knowledge, and the ability to adapt to whatever changes may come. And, for those who are able, to help them initiate and perfect those changes. Not that you would guess any of that by looking at most state education ;)
You can call it what you want, but this is nothing more than the wealthy oligarchs looting the US Treasury – the end game of an empire. The USA is OVER.
Kleptocracy.
DC
Yawn
Since the country is over……when are you leaving ?
Well now carpenter…..
Is that your idea of a death threat?
What are you going to use….a nail gun?
ROTFL
No, it was a fast-forward into the bleak future and what becomes of those people with no skills but big internet mouths. What kind of “work” do you do, blowhard? I probably make A LOT more money than you.
We could have a conversation.
But I think you wouldn’t know how.
Your posts incite violence and mayhem. And you like to play the bully boy all too well.
Depth Charge indeed.
Millennials and Gen Z are the biggest debt-junkies the US has ever seen. They are signing up for $1,000 payments on $80,000 trucks, and the first thing they do is go buy $$5,000 worth of lift/tires/rims. Then they sign up for a $75,000 loan on a toy hauler. Then the Missus needs a brand new 4Runner. And they’re shopping for a house at the peak. No common sense whatsoever.
Depth C,
You are right but it is not a generational issue. Sometimes this is called a consumerist society – what we have really become is a debt consumerist bunch. And all the things worth having are priced in low interest rate / debt / installment prices rather than in wage-based labor increments.
Corporate debt-pushers’ wet dream is to have a 30-year like mortgage on everything – cars, boats, TVs etc
why shouldn’t they be? they’ve seen everyone above them do the same thing with the country as a whole. they figure if its going to collapse anyway, they might as well get their share of the loot.
That’s a false premise. “Everyone above them” was not doing this. It didn’t even exist in the 90s and earlier because you were not even able to go into debt in such fashion.
sure, it is. the massive pension and entitlement promises made in the 90s were the older people doing that for themselves. they’re starting to collect on those now.
regarding debt being wealth, it sure is if you don’t have to pay it back. which is what they’re planning on.
PS – entering into a lifetime of debt servitude is not “getting their fair share of the loot.” You do understand that debt is NOT wealth, don’t you?
It absolutely is wealth.
…..For the creditor
No common sense, but maybe capitalism sense?
Maximum short time profit. There is some logic to, with enough debt, the bank have a problem.
I have noticed a quite fatalistic attitude among the younger generation. Building wealth by being frugal and saving is impossible. It gets you nowhere. So they gamble with crypto, because what do they have to lose? And many see that literally as their only chance to get ahead.
If I was in their shoes, I would probably work the minimum amount necessary to sustain myself and take as much time off as possible to do nice and exiting things before the whole rotten building collapses.
+1. I totally agree. When being prudent is punished, what’s the point of being prudent.
If crypto collapses, then at least they’ll get some satisfaction from seeing the entire thing crumble. Misery loves company.
Doing no work, lying, ignoring the law, and enriching themselves?
I wonder where The Young got those ideas?
Politicians and billionaires always claim to be leaders.
They are certainly fine example-setters ;)
They are smarter and more prudent than the people funding their debts.
Last week TESLA gained $100B in market cap “value” on a $4B revenue order, and Musk gained $29 Billion in “wealth” the same day.
I guess we will all be trillionaires soon enough…LOL
Tesla stock gain for the month is $400 billion. It’s valuation is about to collapse under its own weight.
Speaking of cryptos…
At the tender age of 55 I dont particularly need anything,maybe 2x45lbs barbell plates next year.
So last year I parked all the stimulus money which came my way at Nexo,20,000USDC (USDC is stablecoin which is pegged to $1)
$4.5 is credited to my account every day like a clock since Aug 2020.
I have no idea how long this bonanza will last.Yet it is better than BofA 0.08% annual yield on savings.BofA sends me $1.6 on the same amount every quarter.It is not only mean but humiliating as well.
Now,gentlemen,it is time for a good laugh.Let me introduce BS Crypto Coin of the 2021 which I stumbled upon after signing in at Nexo:
“Decentraland (MANA) is an Ethereum token that powers the Decentraland virtual reality platform. MANA can be used to pay for virtual plots of land in Decentraland as well as in-world goods and services.”
VIRTUAL PLOTS OF LAND,ANYONE ?
COMING RIGHT UP !!!
89% down yesterday,
95% up today
etc etc etc
Didn’t Facebook have some game early on where one could buy farm animals and other stuff? It kind of sounds the same as MANA.
I never used FB or other ego-boosting services so I am not sure.
In Cryptoland it is all virtual.
Today my crypto exchange urged me to sign up for online seminar and learn EVERYTHING about Metaverse:
“A lot of customers are asking… What is the Metaverse?
The Metaverse is a broad term to define the ever-expanding virtual reality worlds where players can create an avatar, buy land, build experiences, import NFTs, and trade with other users. We offer several metaverse tokens, including CUBE, MANA, and SAND.”
I am flipping the coin deciding whether to laugh or to cry 😀
Next up: Ethereum-based Soylent Green staking.
Soylent green has negative connotations.Everybody watched “Idiocracy”.
Laugh all you want but I am sure there is a new applied science behind crypto symbols.Cute smirking dog looking at you with beady eyes from inside fat rocket flying to the Moon…
Strongest emotional response from the biggest crowd of brain dead 2 bit investors…
Similar to “jury selection services”
You pay $1M fee and win $10M verdict with 80% probability.
It feels incorrect to simply blame the demand surge all on the Fed. The pandemic and related lockdowns stifled economic activity and, in some ways, changed how people thought about spending money. I think your argument is only half true. Blaming the Fed, which has definitely contributed, to the exclusion of human psychology seems incorrect.
That doesn’t mean the prescription is any different. The Fed must stop the bailouts every time the world throws the economy a curveball. There is no discipline and everyone gets a participation trophy.
Had Congress simply budgeted to give money to people who actually needed it (while funding that through taxation on the tech companies that made a killing during the pandemic and had the Fed provide a modest lending backstop for solvent companies and small businesses, we would be in much better shape.
If the Fed and the government hadn’t spent nearly $10 trillion in 20 months to create this huge demand, there would not be this huge demand. Simple as that.
It’s that huge demand that is causing the supply chain snags. Everything is operating beyond capacity. If you hand out $10 trillion just in the US alone in such a short time, something big is going to go haywire. And it did.
The Fed should have stayed out of it except maybe to stabilize the Treasury market via repos for a few days; and the government shouldn’t have spread these huge sums around like that. Taking care of the unemployed and a couple of other things would have been enough.
Still no consumer price inflation in Japan.
Starting to. +0.2% in Sep yoy. If you look at the chart, you see the steady rise from -1.0 earlier this year to +0.2% in Sep.
The VA just raised the fees for RE appraisers by 20%. Its about time. Our costs have gone up 20% or more in the last three years. We’re now barely breaking even.