U.S. economy shrank at a 1.4% annual rate in the first quarter
wsj.com
wsj.com
GDP ~= Population * Productivity
If your population growth flat-lines (which it did last year), productivity has to compensate.
Can productivity compensate if the average age is getting older (people tend to be less productive after a certain median age)?
One reason investing in index funds makes sense is the underlying assumption that global population growth keeps increasing (GDP for ‘free’).
I’m super interested in what investing looks like in 50-100 years as the population starts collapsing, because it might collapse faster than productivity can possibly compensate for, which means unstoppable GDP decline.
GDP has to be at certain levels to support different types of economic activity. E.g. at some point, GDP might be low enough that new semiconductor research isn’t affordable (because all the workers are used up caring for the elderly for example).
That is, you aren't getting a positive expected return because population growth is increasing over time (i.e., everyone knows that, it is already baked into the price). Now, if the expected population growth changes...then the price would change.
You have an expected return because you are taking on risk.
You’re both right. The equity risk premium [1] is real. But it’s a premium over something. That something is, approximately, production. (It’s precisely the risk-free rate of return. Which, in the long run, is base-rate production.)
[1] https://www.investopedia.com/terms/e/equityriskpremium.asp
Having said that, if you wanted a return strictly on base-rate production, then you'd invest then in risk free assets (vs equities).
Based on your name I bet you work in research at a hedge fund.
I hate to break it to you but ask most people who are price setters what their discount is and they’ll say 10% regardless of 10Y treasury yields (since you know, TINA)
As a result securities are increasingly priced on liquidity more than cash flows and that’s a function of the credit cycle way more than it’s a function of productivity.
It’s a weird post modern approach to the economy, but hey that’s showbiz baby.
A large amount of corporate profit growth since the 80s has been due to a declining share of labor compensation vs capital and declining effective tax rates. Productivity gains are the only real “free lunch” which is what capital investment is supposed to provide to justify the gains. Productivity growth has been stagnating for a couple of decades.
It feels very weird that the same:
1. US government (which bailed out some big banks when they did all of that corrupt greedy stuffy during the '07 housing collapse) 2. the predatory banks themselves 3. institutions like Vanguard, Blackrock, UBS
really let "the small guy" win in the "retail investor" by allowing us to just click "buy" on things like index funds. it all seems too good to be true. when does the little guy ever actually win?
I have a dumb question. Most publicly traded companies rarely issue new shares. Why does a company care about its share price? If we are being rewarded for buying and holding their shares based on the growth a company makes quarterly, how does the company benefit from their share price going up? They don't commonly take loans against their shares or issue new shares. I know they have a duty to shareholders but... take Facebook for example. Who cares if their stock is down 60%? How does it affect the companies financials?
You don't actually need a separate "fiduciary duty". It comes from the shareholders themselves. If the shareholders are happy with a company has motivations other than maximizing profit, they can.
There's even a legal category for that: Public Benefit Corporation. Some of them are publicly traded -- like Warby Parker. Public Benefit Corporations are somewhat protected from shareholders forcing them to pursue profits, which will hurt the stock price, but investors can value the stock based on the benefit they perceive the company to be doing. (Like Warby Parker giving away free glasses to poor people.)
For regular companies, the executives try to make the line go up because if they don't, they'll lose their jobs.
False, most public companies have stock based compensation plans, which are ways of issuing new shares. Without them, they would need to substitute stock compensation with cash to acquire talent.
Facebook issues shares every time they approve a new stock based compensation plan.
FB has 2.3b shares outstanding. How much has that number grown past 12 months, 24 months, 36 months so I can put what you are discussing into perspective?
If a company doesn't care about share price, the shareholders will elect a board of directors who will install a management team that does care about share price.
People don't want to risk investing without expected gain. But the risk is not causing growth.
I don’t think it’s possible to forecast economics on those scales. If I was cryonically preserved and woken up in 2122, I would be equally willing to believe we were declining or stagnant for the reasons you give… or that we had solved AI and von Neumann replicators and that the planet Mercury had been fully dismantled and used to construct a Dyson swarm whose descendants had already done the same to a similar planet around each of the nearest dozen or so stars.
At least I'd know I have a job waiting for me, supporting "legacy" code still running in production.
In the Dyson swarm scenario, assuming constant population, the productive capacity per person is 2500 times higher than the current global output, and a random act of rounding-error charity would give you more than Musk, Bezos, Zuckerberg combined, and it won’t matter if you have nothing (unless your sense of self worth exists only by the size of your bank account).
In the stagnant scenario, you might be OK with property, if you can be sure it will be maintained in the meanwhile.
In a decay scenario, I wouldn’t even want to guess what’s resilient, but houses will be fairly redundant due to oversupply.
But those scenarios were deliberately chosen as illustrative outliers; there are options between them, and I would do no better with making the right choices there — a limited AI that makes one sector redundant would destroy any investment I made in that sector while also making the output of that sector too cheap to bill separately, much as digital computers have done to the human profession of “computer”.
Similarly, the current flatlining (ignoring the decrease due to excess deaths) of the population won't effect actual production until a couple of decades on, unless you count possibly increased production described above.
That age group is involved in production (e.g., in media.)
But not lot, so, yes, the narrow first-order GDP effect would be very small.
> With a second approximation, you might say that GDP would increase since parental childcare is not part of the GDP and those parents could instead be adding to the GDP.
I suspect second order demand side effects would probably be more strongly negative that second order supply side effects would be positive. You can't predict GDP effects from labor supply side effects alone.
Eventually though the benefit disappears as the demographic pyramid becomes a pipe and the share of working population shrinks again. The US demographic dividend was the era of the baby boomers who were a large cohort but had relatively few children.
On average there is a strong correlation between the two globally and there has been during the entire post WW2 era at the least. It is the rare outlier that doesn't see a correlation between societal well-being and GDP per capita.
Shall we stroll down the list of high GDP nations? Surely it's unnecessary, as we all know the names. Oh ok let's do it anyway.
Ireland $101k | Norway $99k | Switzerland $96k | Qatar $84k | Brunei $80k | Singapore $79k | US $76k | Iceland $74k | Denmark $68k | Australia $67k | Sweden $58k | Netherlands $57k | Canada $57k | Israel $54k | Finland $53k | Austria $53k | Belgium $52k | Germany $51k | New Zealand $50k | UAE $50k | UK $50k | France $44k | Japan $39k | Kuwait $39k | Taiwan $36k | South Korea $35k | and so on
And everyone also knows what the bottom 1/4 or 1/3 of GDP per capita nations look like and how horrible their societal well-being is. The correlation is blatant. It's not perfect of course, it is however very high.
There are no great societal paradises where the GDP per capita is ~$500-$5,000. And there are no countries that are like Zimbabwe, Somalia or North Korea but have $30k+ GDP per capita figures.
The only serious weak spots in the correlation, primarily, are the US being ranked so highly on GDP per capita (but being below eg Finland on societal well-being), and the couple of smaller resource rich nations like Qatar where human rights are weak. For the vast majority of nations the correlation is quite sound and consistently so.
Still I agree that between top and bottom there is huge qualitative differences.
Ok, not paradise, but a counterpoint I can think of might be Bhutan at around $3,200.
Probably the same as today. Big tech will do well: google, tesla, amazon, etc. The wealthy and B2B will continue to provide a growing share of economic value, outpacing retail consumers and compensating for population stagnation. I don't see any reason for productivity to fall. Productivity surged during pandemic.
The good news is, this won't happen in the US, at least not in the 21st century. So if you're an American, feel lucky.
(1) We border a rapidly developing nation to the south (Mexico), with significant economic ties at that border.
(2) The United States is, hands down, the most effective society at integrating immigrants and allowing them to be productive. We can always, always import more workers, and people will always, always want to come here.
I think nominal GDP targeting is pretty bad policy though. Deflation can be a great thing for people, if its focused in the right areas.
e.g. imagine population is cut in half overnight... suddenly housing becomes very cheap and affordable, even in previously desirable areas. Of course, need to deal with all the ramifications and second order effects of that (lots of financial instruments would implode as their inflationary baseline assumptions unravel).
Debt instruments of all kind become problematic with deflation. At least in their current form.
Fortunately the US could toggle on population growth on a whim through changes in immigration policy
Only if accompanied with a negative interest rate so that the real interest rate is 0%. The problem with deflation is that it raises the real interest rate, even though nobody signed a contract "hey if deflation is 5% I will willingly pay a real interest rate of 5%". When you consider that deflation primarily happens in economies that don't need further growth, paying that interest rate is not good for society.
Most certainly. We'll very clearly do it with robots and artificial intelligence. Although people are expecting way too much way too soon. The classic line about how people overestimate change in the short-term and underestimate change in the long-term.
Elon Musk may occasionally be a clown in his behavior, but he has persistently been out on the cutting edge where newer technology meets real-world usefulness (the point where technology is ready for mass adoption; an awareness Steve Jobs also had). That's why Musk & Tesla are so interested in robotics (and they have the cashflow now to easily afford to pursue it in a big way). It will be a very large market, 30 years out, and it'll do a lot for boosting per capita productivity while population declines or stagnates.
For example we might see a scenario where population declines in the affluent nations, with persistent aging, and productivity remains stable or even gains, thanks to all manner of human labor enhancements that we'll come up with in this looming era.
Musk is in the process of tying most of his free cash up in a web app instead of investing it in his businesses which might cause those larger companies to have issues.
And I'm not sure where your premise matters re what I said. Tesla is the entity in question with the booming free cash to spend from operations, as their business has become soundly profitable. If Musk leverages his enormous net worth on acquiring profitable Twitter - what does that have to do with Tesla's ability to direct its operational cash to robotics R&D? Maybe his focus being split further will increase the risk to Tesla's profitability over time, however you didn't suggest that (and maybe Tesla would be better off with a Gwynne Shotwell operating it anyway; a more distracted Musk that has to hire a superior operator might bolster Tesla).
With $3.6b in operating income last quarter, and $9.6b over the last four quarters, Tesla increasingly has huge resources to throw at big R&D programs. Which has little to nothing to do with Musk's personal finances.
So far Tesla Robotics hasn't shown much to make anyone think they are serious about it. He needs to run his companies like an adult and stop doing stupid stunts for attention and taking stupid risks like smoking drugs one of your most, if not the most, profitable customer says are illegal on camera.
You’re missing an critical component from the Solow model.
Japan is an excellent case of when labor population has declined/stagnated since 1990s.
Perhaps you can pick two of three: a stagnant economy, low immigration, non-right-wing politics. Japan picks a stagnant economy and low immigration (Shinzo Abe though a nationalist was no Marine Le Pen). France picks a somewhat growing economy and somewhat high immigration, and suffers from the growth of right-wing anti-immigrant parties (Marine Le Pen won 40% of the vote recently).
France population 1990: 58 million | France population today: 67 million
France GDP 1990: $1.2 trillion | France GDP today: $2.9 trillion ($1.2t inflation adjusted forward 32 years is $2.7 trillion)
They gained 15-16% in population, and gained 6-7% in GDP. A big net drop per capita over such a duration, particularly for a major affluent economy.
And if one wants to be more aggressive about how big of a failure their immigration program has been, the French economy has net contracted in real terms over the last 15 years. GDP was $2.9t at the peak in 2008, and it's still there now; except to just remain steady, it needed to climb to nearly $4 trillion to adjust for inflation. So France has gained 5% in population over ~15 years, and is missing a trillion dollars in GDP they should have just to remain flat (ie they've seen a massive per capita economic contraction over those 15 years).
One might claim the decline in France would have been even worse without their hefty immigration policies. Likely a false claim given the very high unemployment rate among immigrants in France over the past two decades. The French approach to mass immigration has been a disaster (while other better controlled examples have been great successes, as in Canada). Skilled immigration is vastly better than low-skill mass immigration, especially going into the era of basic human labor coming under attack by the field of productivity robotics. It's a far better approach to focus on improving your nation per capita net via attracting highly skilled labor, in terms of productivity and incomes, than just focusing on getting as much raw immigration as you can. That's the core failure of the French approach.
It's far better to be rich Canada, with a flat to very modestly increasing population, in which real per capita GDP keeps rising and they keep focused on adding high skill labor (which makes their country richer and richer over time), than to be an declining France that throws low skill labor at the problem. For one thing, the high skilled labor immediately begins contributing to the tax base in a big way, which is critical for an affluent welfare state; whereas a tilt toward low skilled labor + a welfare state is a recipe for fiscal disaster.
US GDP per capita is on track to reach a doubling of the French GDP per capita, plausibly this decade ($76k vs $44k now and the gap keeps widening year after year). Meanwhile Canada is also now up to $57k (France and Canada were nearly the same on GDP per capita in 2008, now there is a $13k gap), so they're increasingly leaving France behind as well.
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locat...
The bigger question is whether you put much stock into PPP. I personally don't, I consider it a very weak economic metric, poorly constructed and poorly tracked. There are is no economist army traversing the globe every year and actually accurately tracking PPP nation by nation (every nation and to the great depth required); nobody does that, they slap giant guesses on it year after year, trying to extrapolate from a small basket of signals in a given country, and starting from the base GDP figures. PPP pretends that Puerto Rico is above Portugal (and nearly on par with Spain or Estonia), Russia is on par with Greece, and China is on par with Botswana. It's a bad, unreliable joke.
I think in place of PPP, it's almost always better to do a deep dive on a given country on its various quality of life metrics, even though those are also at times difficult to compare nation to nation (due to variances in how each country measures).
For example, I don't think it's difficult to show that Finland has a comparable or higher quality of life than the US (I believe it's solidly higher personally, particularly at the median or lower), despite the $20k GDP per capita gap. The US is typically used as the base for PPP, so starting at $76k for the US, you then have Canada and Finland at $58k and $57k on PPP - do I really believe there is such a gap between the US and those two on PPP? I'd be very skeptical, it's another case where PPP doesn't do a very good job.
In most countries the population has already started collapsing
https://en.wikipedia.org/wiki/List_of_countries_by_populatio...
The fed only stopped buying MBS a month ago.
(Also, they hold like $2T+ of them on their balance sheet. Im sure the 'experts' over at the fed will say this has no effect on the current market)
Housing units per household is at year 2000 levels and in line with history.
Check the data, it's all on FRED
What you're repeating is common conversational talking points spread as fact.
It is true that building slowed in the 2010s, but housing was overbuilt in the 2000s too which neutralizes that. Also number of housing units under construction is at an all time high right now, while population growth is the slowest ever (including immigration) and decelerating.
Look to the Japanese property sector for the future of US pricing. Demographic story is a long one that will take decades to play out though. Immigration policy could change things
https://www.google.com/search?q=japanese+population+growth+r...
What do you think happens to housing units per capita as population levels decline?
The US and China are on the same path, just some years behind. We can ignore demographics for the next handful of years, but it will become very impactful on a 10+ year time horizon. China will deal with the inverted population pyramid sooner than us, so it will be interesting to see if that affects their GDP surpassing the US.
Anyway, the property sector will be super interesting in 50 years, when everything is overbuilt relative to population size. I imagine eventually rents will naturally become deflationary
That's easily refuted with a quick search.
Decreased supply along with increasing population(demand) generally yields a shortage and increased prices.
I know Houston supposedly got a HUGE influx of people leaving NYC and SV in 2020-2021, but still, my home town of around 20k people just got 2 brand new neighborhoods in 2021 with 500 homes between them all selling for $300k+ when you used to be able to buy a house in town for $50-100k. Even with record breaking housing development, the cost of homes in the last few years in Houston has been ridiculous.
How can there be any doubt that this production glut has played a huge role in the rise of housing prices?
so what did the seller of those property spend their profits on?
Yeah but unoccupied units is only a few % in the hottest housing markets. This makes sense, considering that the opportunity cost of leaving a home empty is higher if the rent is higher. Because of this I'm inclined to believe it's popular-but-ineffective intervention, like banning foreign buyers (which also make up a few % of overall sales)
If we want low-cost housing, the government can provide that. Instead, we rely on a market that is designed to optimized for highest cost the market can bare.
99% of homes are not vacant. The vacancy rate of housing is not significantly different from the past, in fact its actually lower than it was a few years ago. While I don't really mind the idea of taxing long-vacant properties to encourage use and discourage pure speculation, I don't think it'll make that much of a different in residential property valuations.
This can be very roughly approximated by a 10-year moving average on the product of (housing prices x mortgage rates). CPI shelter inflation is currently ticking up each month like clockwork, at 5% and climbing, and it has a long way still to go to catch up with that trend.
The port backlogs that started in 2021 were due to excess consumption triggered by stimulus
Retail sales chart: https://fred.stlouisfed.org/series/RSXFS
Tell me you don't see a problem here ^ ?
United States Imports from China: https://tradingeconomics.com/united-states/imports-from-chin...
Perhaps after the sharp downward in 2020. But it isn't clear what is the primary driver after the 1st qtr of 2020.
That chart doesn't necessarily imply consumer consumption is driving the increase. It could be inflation that's driving the uptick in the chart.
If last year it cost $1 to buy a dozen eggs. And now it costs $2 to buy a dozen eggs, it would cause a spike in the chart. Same amount of purchases, but different prices.
It's hard to tell from that chart whether the rise to $600 billion in consumption is due to more consumption or higher prices. Is it 2 * $1/dozen = $2 or 1 * $2/dozen = $2. We end up at $2, but one is via greater consumption and the other via inflation.
That doesn't happen by mistake, and if you look at the personal income charts it becomes even more obvious.
Also the various spikes in consumption clearly aligns with when the respective spending packages were passed.
The fact that it took a whole year for people to understand the root cause is quite amazing, given that we have this very obvious data. But there was a vested interest in it being a supply side issue, so I'm not surprised
It is only obvious to people who have already drawn their conclusions and are looking for justifications to back up their conclusions.
> That doesn't happen by mistake, and if you look at the personal income charts it becomes even more obvious.
Once again, you already had your conclusion and went looking for "data". Personal income spiked briefly and fell back down back to its linear trajectory.
> The fact that it took a whole year for people to understand the root cause is quite amazing, given that we have this very obvious data. But there was a vested interest in it being a supply side issue, so I'm not surprised
Looks like there is vested interested everywhere.
In my experience, people who see the "obvious" in a very complicated issue are agenda driven people with vested interests. Also, my comment was in relation to consumption and inflation. My point was that you can't necessarily see inflation in consumption because you can't tell if the increase in consumption was due to inflation or more purchases. Something you completely ignored.
Food, energy, & financing are >50% of the US economy.
The rest of the economy is primarily services - which have very little impact from the supply of screws & toasters coming out of China going down.
[1] https://www.clevelandfed.org/en/newsroom-and-events/publicat....
That feels intuitively correct to me, but I’d like to see some data. For example the shampoos and ointments and such used in hair and nail salons all comes from China. OTOH essentially all restaurant food is domestic.
The vast majority of traditional services have ~50% of revenue going directly to labor.
Aside from cloud hardware, the impact on the rest due to supply constraints from China has been extremely minimal.
Very little food comes from China. Almost 0 energy. And financing costs are 100% set by the Fed.
China plays a very small part in the US inflation story.
with the exception of financial services, all of the other services you listed require commodity materials to work - things like food services require utensils, plates, napkins, not to mention the food. Healthcare has a lot of materials (not just the direct, but indirect materials like reagents for labs and diagnostics) which often come from overseas rather than locally produced.
As for technology, it's such a broad area that i dont know what to say about it but at least for compute, there's a lot of shortages of commodity hardware recently.
Not saying that all of the shrinkage and inflation is caused by the supply chain slowdown from china, but a large percentage of it is. The rest is from labour shortages.
Food per se may not come much from China, industrial food production is as exposed to supply chain issues involving China as anything else.
Irrespective of the source, the Fed rate hike (well, and QT, which it is expected to also deploy) is the only tool it has available to deal with inflation, which is still, for now, the bigger problem from the perspective of it's mandate.
The fact that (possibly transitory if policy were neutral) slowdown is occurring while the Fed is taking that action, though, means it is especially critical for Congress to take fiscal action to fine tune the impacts or there is a very high risk of recession occurring before inflation is controlled, producing a period of stagflation which is both tremendously painful across the economy and very difficult to escape from.
The problem is Congress is basically asleep at the switch on economic policy.
And the signalling of aggressive hiking, though not all at once, is very important. By saying they will do it and then following through they can change course in a few months depending on conditions.
One of the important lessons from the 1970s was but unfortunately positive feedback loop baked into inflation escalators all based on expectations plus the only way to break the cycle was Carter to recruit Voelker to basically shut things down to damn that curve. Since then the Fed has used an interesting combination of oracular opacity alternating with clarity to try to prevent a repeat of the 1970s situation.
Everyone is pointing at the Fed for causing inflation and ignoring the fact that Congress gave business owners five-to-seven figure payouts in straight cash. You can find out how much businesses around you received from the PPP, and there's no shortage of small companies who received a few hundred grand in aid.
Imagine what you'd do with a $250k check from the government.
Unfortunately as the stimulus was known to be a short term thing this did not lead to people starting factories to make products to sell. By the time they got it running the stimulus would run out and they would be left holding the bag.
Many were questioning the approach of focusing on supply side, making small changes, observing and reacting instead of a big mega stimulus the likes of USA did. Good to see some merit in India.
[1]https://economictimes.indiatimes.com/news/economy/policy/wai...
[2]https://twitter.com/sanjeevsanyal/status/1461787145027338245
Meanwhile increasing interest rates are in a nasty intersection with banks and other lenders stuck with low interest 30 year loans on their books, which make them very vulnerable to any new lenders.
definitely popcorn time.
Are those loans supported by other low interest loans they took themself?
I may be wrong, not an expert in this topic.
This is more true in Europe than the US. Most of the inflation there is due to (1) Increases in the price of energy and (2) Supply chain issues.
While those are also true in the US, much of the inflation in the US is due to wage increases (something like 40-50% of the inflation I believe). These are likely the result of a number of factors including the US having outsized stimulus relative to other developed countries (especially the fiscal stimulus).
So it is more reasonable for the Fed to consider tightening. And for the Europeans to be significantly slower on their tightening. Thus, what you are seeing in the currency markets where the EUR/USD is decreasing.
Although that doesn't really explain the inflation of asset values.
If inflation is 8.5 percent and the seed company raises prices by 9 percent (rounding up cause they arent really sure what inflation actually is), the fertilizer company goes up 9 percent, the tractor parts goes up even more (cause supply chain shortages), and the harvest contractors rates have to go up 9 percent, and the distribution that gets the harvest to the producer goes up 9 percent, what does the final price look like? Has there been analysis like that?
The 8.5% is a weighted, blended average of a lot of things.
So it could be reasonable that if you were selling bread, that the price would need to go up more than 8.5%.
The question is whether their profit margins are up? I don't know.
I would naturally expect companies to hold larger profit margins when there is instability. Setting up a business with low profit margin in a volatile business environment would be like building a house on a concrete slab right next to a river that often overflows its banks.
There can be a lot of reasons for inflation.
>>> The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production …
Given that other rounds of QE did not produce inflation, no, it's not a “necessity” of that. Money supply is a factor in inflation vs deflation, but do are lots of other things.
and money is not constrained. What could go wrong?
Traditionally, to deal with the problem of constrained supply you would lower rates to make more capital available in order to create more supply-producing assets. I don't think the Fed should lower rates in this situation because we all know that building more factories won't solve the supply chain issues due to the pandemic. However, we need to balance that against investing more in automation since having fewer workers due to the pandemic.
They're in quite the pickle!
Indeed, may as well buy now (if you can) since you'll get less for the same money in the future.
> The higher prices will bring demand in alignment with supply.
Unless the stimulus cash injection policy allows people to continue to buy now (see above).
Economists expected a rise in inflation due to stimulus spending in 2020 - that had already been factored in to their forecasts. What has surprised them is the rate of inflation is higher than expected. I'm arguing the reason they're surprised is they were only considering financial policy and not also including the effects of constrained supply - which is also why they also missed forecasting a shrinking economy.
Wouldn't it be wise to start building more factories so that a supply chain disruption in one area doesn't cause such painful shortfalls in supply on a global scale? It seems like a China-free supply chain would be making bank right now. I guess you'd have to weigh the time to ramp that up versus the odds of China locking down severely again. Still, I would hope that a lasting consequence of this would be a diversification of supply chains to mitigate this kind of problem in the future.
https://fred.stlouisfed.org/series/M2SL
The inflation we're experiencing now is a lagging indicator of the massive stimulus of 2 years ago.
Keynes was right: he's dead. Unfortunately, we, and our children, are not.
Household debt to GDP has gone down since the low interest rate environment kicked off in 2010. Same is true for household debt as a percentage of personal income. Although I will note that its debt payments, not absolute amount of debt and obviously lower rates lower the interest portion of debt payments.
I agree there is something troubling going on but it's not a personal debt crisis
- Inflation is at it's highest since the 1970s in the US
- There is a large military conflict in Europe.
- There are shortages of chips, energy, and food on the horizon.
- Unprofitable growth stocks have valuations as high as 100:1 on revenue.
- There is increasing militarized tension on many portions of the global supply chain (Russia:EU, China:US, China:Taiwan).
- Housing has appreciated by up to 40% YoY in major US cities.
- A global pandemic has introduced lockdowns, and potentially permanently changed people's relationship with work. While killing a million people.
- The US legislative branch is utterly paralyzed.
- The US business cycle hasn't seen a recession since ~2010.
I'm sure I missed a few, but the fact that a recession hasn't happened should be more surprising than a recession happening.
https://en.wikipedia.org/wiki/Financialization
Finance industry share going up vs. Real economy output, which could be cause or the consequence of high valuations.
Quoting Asimov's description of Trantor in Foundation.
> This enormous population was devoted almost entirely to the administrative necessities of Empire, and found themselves to be few for the complications of the task.
The ongoing confusion about what this disease's risk factor is worrisome. First I think people have much more distrust in science and government. There is still a deep divide amongst the population and I am concerned about how we will handle another wave of restrictions whilst the economy buckles and a global war is on the horizon.
That said, SARS-CoV-2 is endemic now, with known animal reservoirs. We're not going to stop it with NPIs anymore.
Relatedly: a decrease in debt is exactly what I would expect from an Uberized economy where nobody owns anything anymore. I’m not sure this is such a good measure of economic health.
Stated differently: a small amount of debt is an indication that people are investing in things. That’s usually a good sign.
No. New car sales are currently bottlenecked by supply chain issues, not demand. Housing sale demand is dropping, but still very solid compared to inventory.
At some point, this supply restriction becomes inflationary. If you can buy a new car and resell it a month later for more than you paid, the MSRP is below demand.
Since consumers react poorly to price increases, this is also coupled by reduction in quality or service.
I've seen this thrown about and have to take this with a grain of salt because even the infirmed/elderly/retired are still part of the economy. They consume food and resources, albeit they aren't out buying durable goods and new cars, but they are paying rent/mortgage in their retirement communities, eating food, buying CPGs* (some of which fully rely on an older population).
I'll take the example of my two relatives that died from COVID, neither had underlying conditions: One was a 65 yo former airline mechanic on the verge of retirement with a McMansion in Houston area, he spent a lot of money keeping up that lifestyle, and when he passed my aunt moved back to a small town, and downsized, considerably shrinking her spending. They had planned to spend the next 10 years in an RV that is no longer going to happen. The other is my 46 yo cousin with 4 kids and was a seven figure earner in sales living in Kansas City area. Again, huge amount of spend and now his wife is getting by with a massively reduced house and budget.
* Did the hard candy industry take a nose-dive? Should I be shorting Werther's Original stock?
Only 1 in 20 deaths attributed to COVID-19 were between 0 and ~49.
Abstract models of "productivity" vs age peak close to where the covid death hockey stick turns upwards.
The 50-60 age bracket is where the big losses are, losing 100k-200k people near their prime and 5-15 years of remaining economic contributions. Younger populations saw much fewer losses, older populations mostly left the workforce.
I'm not sure that's true. Many civilizations, up to and including now, have the cultural practice of the weak and elderly destroying themselves (or being destroyed) when they become a burden on their relative/society. The most obvious example being the concept of east asian (Korean/Japanese) elders "going to the mountain to die".
You have to look very hard for a successful civilization that doesn't do this. Sparta, perhaps?
(This is also not really the point of the original comment.)
Second, a lot of people retired well before they usually would to stay out of the path of covid or covid-induced craziness. This is a big part of the school bus driver shortage, for instance. A lot of older people drove school buses for a bit of extra cash, and to be around kids. Wisely, a lot of them decided to stop doing that, and might not come back for a while.
So it isn't just deaths that are the reason for a reduced working population, although that has an impact, too.
Really? The elderly may not be likely to work, but they still consume (they consume lots of medical services in proportion to their numbers, for instance.)
> reducing the burden on the state for such things as retirement and Medicaid.
“the burden on the state for such things as ... Medicaid” is a chunk of economic activity. With taxes the same and that spending gone, alone, the economy shrinks.
To a ruthless cold-blooded optimizer, deleting the elderly should be good for the economy because you save on their maintenance costs and their resources get redistributed to more active investors. This might decrease GDP, but that only reflects on GDP being a problematic metric.
I guess it's true that smashing windows or providing medical care to the elderly would increase the "size of the economy", because it adds entries to the implicit "market's bid/ask order book". And you could measure the size of the economy by the size of that data structure.
In what proportion?
More dead people means fewer competitors for all resources except labor. What that means is fewer people need stuff and there are fewer people to make stuff, so the stuff the dead people had is easy to obtain for the living while employers have to pay more for labor because there is less of it.
As evidence the black plague was considered one of the major events that ended the dark ages and the oppressions (relatively speaking) of the peasant class. Suddenly lord's needed to start giving their peasants rights and things to do or risk losing them to a lord that would give them those things.
It's horrible and callous but it is also a fact, especially when you consider many of those deaths were not among the most productive segments of society.
Think about the networks effects of an economy. An economy of one person has a size of zero units. An economy of two people has a size of one unit, an economy of n people has a max size of n^2 units, or more really nlogn, when you take into account the Gaussian distribution of value between each node of the network.
But, that's the whole gist of our economy: lots of people needing stuff (consumers) and lots people making stuff (labor).
The big drag in the report is from inventories and trade, which are being impacted by pandemic-related supply chain issues and geopolitics.
Look at mortgage rates for instance. Or just equities indeces.
https://www.cmegroup.com/trading/interest-rates/countdown-to...
they will do what market will allow them to do. One bank can raise rates, but others won't, they will secure pre-hike loans, and win customers because of lower rates.
Also, I am not sure if commenter above referred on loan rates market or maybe stock market..
If people stop borrowing, the interest rate on existing financial capital would fall way below 0% but since cash has a 0% interest rate, it's the working population that get screwed over during deflation through involuntary unemployment (also known as a economic depression).
Eternal money is a farce, it is inherently unstable and can't exist over the long term which is why it constantly collapses and all you can do is delay the collapse as if the economy was a roguelite where you are supposed to get as much progress inbetween runs.
Demurrage currencies allow the economy to represent negative interest rates and therefore eliminate the need for endless borrowing and inflation while simultaneously achieving full employment as predicted by Say's Law, decentralization of jobs, reducing wealth inequality and rewarding long term thinking.
I guess you're saying that Keynesian doesn't work all that well when growth in supply is constrained. This doesn't seem necessarily to be the case, to the extent that people can be convinced to buy things that aren't in short supply? Demand for many essentials is inelastic, though.
That's the opposite of Keynes' meaning. Keynes was satirizing economists who say, 'it might be bad now, but things will work out in the long run'.
The worrying thing is there are no monetary levers available without the risk of higher inflation. And if people don't think GDP matters, its actually a very good indicator of all sorts of well being measures such as unemployment and premature deaths among other things
[EDIT] This is real GDP. I was mistaken
Together, trade and inventories subtracted about 4 percentage points from headline growth. Government spending shrank, also weighing on GDP. But real final sales to domestic purchasers, a measure of underlying demand that strips out the trade and inventories components, accelerated to a 2.6% annualized rate.“ [1]
In case you’re wondering why the market is blowing this off while the Wall Street Journal and, I presume, CNBC, are blowing it up.
[1] https://www.bloomberg.com/news/articles/2022-04-28/u-s-econo...
Assume you import $1 of goods, which are consumed. Then the GDP reflects $1 consumption (either private or government) minus $1 imports, for a net zero.
The goods may not be consumed immediately, in which case GDP counts $1 inventories minus $1 imports, still net zero.
The thing to remember is that GDP is domestic product, so anything produced abroad is irrelevant.
Correct [1]. Net exports is a non-zero component of GDP, but "the imports variable (M) correct[s] for the value of imports that have already been counted as personal consumption (C), gross private investment (I), or government purchases (G)" [2].
[1] https://fredblog.stlouisfed.org/2018/09/do-imports-subtract-...
[2] https://research.stlouisfed.org/publications/page1-econ/2018...
(All calculations approximate, but close given that the percentages are all fairly small.)
If you are healthy and know you're going to have income for the foreseeable future that counts for a lot.
On the other hand, Elon Musk Twitter purchase: $44bn. There's plenty of money out there still.
I think it's unlikely that merely raising rates will do anything, for two reasons: firstly there's a real need to do some fiscal policy as well, and secondly this inflation is being driven by real shortages not just the bidding up of goods. Chip shortages, fossil fuel shortages due to cutting Russia off the world market, food shortages, and the war in Europe's sixth-largest country destroying a lot of production capacity. Not to mention ongoing COVID costs.
They do. So does Occupy Wall Street. It's actually been a little over a decade of people of many political stripes having the general impression that there's a significant disconnect between the will of the elected officials and the will of the people. People disagree about root causes and remedies.
Because occupy actually got at the root of the problem... The other two are distractions.
A whole lotta people, mostly outside the HN demographics, are real pissed off about a decade of public policy that has amounted to making their lives worse and worse at every juncture and now it's finally getting to the point where ends are hard to meet.
I am not dumb enough to try to make specific predictions but that's a pretty substantial powder keg.
> Reagan kicked off the looting of the middle-class in the 80s, and both parties officially adopted that policy by the mid-90s, almost 30 years ago.
They had four years under Trump threatening the city-dwellers and neo-liberals, a literal armed rioting mob, sympathy within the government and law enforcement and a gallows in front of the Capitol on Jan. 6th. They had the half of the country with all of the guns and all of the dreams of patriotic revolutionary glory convinced the election was being stolen at that moment by Chinese communists and the very party they blamed for all of their problems.
If they couldn't make it happen then, when all of the stars were aligned and the winds of populist ferver were at their backs, I don't think anything more than an occasional riot is going to happen in the future.
Gas was cheap and shelves were full then.
Increasingly, money and power are concentrating at the top, with people who are also increasingly insulated from the negative consequences of....well, all the bad stuff that's happening. That's a recipe for things spiraling out of control.
Is there any reason those would not count as "civil unrest"? And non-rioting protesters of whom there was plenty count as civil unrest too.
> On the other hand, Elon Musk Twitter purchase: $44bn. There's plenty of money out there still.
Not sure what that has to do with civil unrests. Some people being super rich does not imply all that much benefit for the other people in the same country.
The money is concentrated in the hands of a very few.
>Always wondering exactly what people mean when they talk of "civil unrest", and who and how will it start. Do the various riots in 2020 America or the Jan 6 storming of the capitol count?
For sure those count. Racial civil unrest, riots, and insurrections are contemporarily happening. https://en.wikipedia.org/wiki/2020%E2%80%932022_United_State...
https://en.wikipedia.org/wiki/Capitol_Hill_Occupied_Protest
https://en.wikipedia.org/wiki/2021_United_States_Capitol_att...
It doesn't take a crystal ball to predict this will continue. Occupy wallstreet and teaparty stuff started 10 years ago and the USA hasn't really stopped since. We can go into reasoning or causes but that's not important.
The bigger reality is what's next. We have some pretty seriously bad economic numbers going down. High inflation, strong possibility of a recession, very probably food security issues.
When you mix civil unrest and riots with hunger. It's going to be bad. A civil war isn't inevitable, though if i'm predicting correctly, it wont be democrat vs republican or north vs south.
>I think it's unlikely that merely raising rates will do anything, for two reasons: firstly there's a real need to do some fiscal policy as well, and secondly this inflation is being driven by real shortages not just the bidding up of goods. Chip shortages, fossil fuel shortages due to cutting Russia off the world market, food shortages, and the war in Europe's sixth-largest country destroying a lot of production capacity. Not to mention ongoing COVID costs.
May 4th, I'm expecting a huge rate increase. Probably headed well over 1% and nothing you or I say matters. Supply vs demand inflation is certainly debatable but won't change their course of action.
Something we should seriously be looking into is massive seeding effort for lakes. Get tons of fish growing this year. Get fishing boats out into the oceans pulling fish in. Major culling and harvesting of sharks.
Effectively the plan would be to produce significant more food than necessary and proactively deal with consequences like overfishing.
By eliminating this problem, we may eliminate the possibility of the unrest/riots becoming something more.
Accelerate the destruction of the fish ecosystem? It's already being run at capacity, ditching quotas will give you more in year 1 and a total disaster in subsequent years. Most sharks are endangered species; which do you want to make extinct for a political point?
I know the great lakes very well. We are maybe around 5% capacity there, possibly far less. I believe your confusion might be that you misunderstood when I said massive seeding effort.
Oceans are less than 1% capacity. I couldn't even fathom to tell you how many zeros are in that small fraction of 1 percent.
In terms of sharks, great whites, tigers, bulls, hammerheads. All are 'vulnerable' or less but certainly not endangered. Yes there's a handful of endangered shark species but none of those would be your typically targeted types.
It's true that inflation is high, but the data shows us that most of this is being caused by factors not related to high economic demand: it's energy and food.
Core CPI also increased, but it's tempered considerably: the annualized rate of the latest month over month core CPI change is now under 4% (3.9%), having fallen from an annualized m/m rate of change of 6.5-7.5% a few months ago. 3.9% is a little higher than our target of 2%, but not as alarming as the headline rate of total CPI.
Everyone made fun of the claims of "transitory" inflation from late last year, but it's looking like -- except for energy and food, which are being driven by international events -- the drivers of base inflation really were one-off events, and are not continuing at the same rate. For example, international freight increased dramatically, from around $3,500 for a 40HC from Ningbo to LA to $18-20k, but it has since stabilized to around $15k - and inflation is a rate of change, so in that area we are not seeing a continued paced increase in cost. It's just stayed expensive.
Of course, energy and food matter, a lot. Food prices matter more than the price of, say, imported lawn chairs. But it's useful to ask why inflation is happening. Is it because our demand is too high and there's competition for resources? Then we need to slow down the economy to reduce competition for resources. That's the Fed's job. Or is it because there's a sudden reduction in available global oil and grain supply? Then it's not clear that causing a hard recession is going to fix it. In that case, we need to fix the decrease in supply. And in our current case, that's not easy: much of this increase is being driven by a misinformed dictator of a nuclear superpower hell-bent on escalating a regional war, and this type of problem is not one the Fed is well equipped to deal with.
What we're really seeing is supply-side driven inflation. The Fed should continue to drive core inflation back down to its target level of 2-2.5%, but we are already seeing success here. The real question is what we do about energy and food, and it's not clear the Fed's actions are going to solve that problem.
"Inflation in April was 7%" is indeed a frequent misleading/ambiguous phrase. They should say, "consumer prices rose in April at a 7% annual rate", or say "consumer prices increased by 0.6% in April", though constant incorrect usage might lead people to misinterpret the latter.
DOW: -8.36% YTD
S&P500: -12.22% YTD
NASDAQ: -20.17% YTD
Inflation: 8.5%
Interest rate: 0.5%(increasing once by 0.25%)
Balance of trade: $-89.2B
>they still think the Fed will be able to rein in inflation without triggering a recession.
It was raised once and everything is collapsing underneath. Don't know how you look at all this and think 'it'll be fine'.
There's a general rule that this kind of behaviour like this and this is obvious enough. What's more important is the reality of civil unrest.
The equity market is not the economy and a lot of the financial websites make money on hyping up the latest quarterly numbers. Are there concerns here? Yes, there always are - is the world about to end from this? Absolutely not.
Give me a break, we’ve been through much worse. Let’s stop with the FUD please.
High inflation and raising rates going into a recession is not going to trigger a civil war or even really unrest in any major way.
>Give me a break, we’ve been through much worse. Let’s stop with the FUD please.
political polarization in the usa has never been so bad except for ...
Americans don’t even want to give up their private healthcare, and y’all talking about civil war.
I dont see civil war as an inevitability. Civil unrest seems inevitable. Then again not exactly much of a prediction there given ongoing civil unrest.
Also I don't believe civil war is rational as you project it to be.
Imagine republicans take over in midterms. Speaker of the house becomes Trump. They then impeach and remove biden and harris making Trump president again. What happens?
Imagine democrats clean sweep the election and they were boarding up windows again. Blue wave... what happens?
American’s financial situations are actually quite good right now. Everybody is just anxious as fuck, for many reasons.
All the insane stuff that's happening and will happen is the hangover of not having a depression in 2008 and delaying it by printing money and propping up banks.
But you can't delay the inevitable.
People are not doing that well right now, and there's a lot of anger between the people who are doing the worst, and the people who are doing fine and saying "America's financial situations are actually quite good right now."
Like what happened with the Great Depression? I saw no mention of food shortages in the article.
My sense is that civil wars are when states/governments fight, not hungry people. You could have stopped at civil unrest.
https://www.businessinsider.com/ukraine-russia-bread-food-pr...
https://medium.com/something-about-everything/food-riots-and...
>My sense is that civil wars are when states/governments fight, not hungry people. You could have stopped at civil unrest.
What happens when food is scarce and people are starving for possibly the first time in their life? Anxiety, depression, etc is well established.
Then people are going to want to know why they are starving.
I think any issues we have will be people not having their first option of food, not going hungry.
I had a solid weeklong period here where no store within 15 miles had any fresh dairy products, meats, produce other than herbs, or bulk grains (flour, rice, pasta, etc).
Leave it at civil unrest.
This is one of those things that works perfectly in principle but does not seem to work in practice. I've lived in solidly red or blue districts all my life and in only one election did the party representation switch to a different team. That was only because blue team had two top-tier names splitting the vote which allowed a red team representative to win the special election. They were defeated in the next general election by a landslide.
Furthermore, I also see Congress as having a single digit to low teen approval rating as evidence that being unhappy with one's government does not correlate with actually getting "a different government". Without getting into a long drawn out discussion of why this is the case, I nevertheless think that voting is not the solution it is touted to be.
Edit: I still vote regularly and I encourage others to do so as well. It's not a totally hopeless situation but people should have realistic expectations and expect to be disappointed.
How much food rotted at the Texas border after Governor Abbott's PR stunt held it up? Estimated to be over $4Billion.
First, I'm skeptical about $4 billion. That's a lot of food.
Second, what is with the need to bring up something or someone irrelevant as a rebuttal every time there's even a tangential criticism of the current powers-that-be?
https://medium.com/the-haven/texas-gov-abbotts-racist-border...
This article says $240 million and he reversed the policy? So it's not an ongoing issue?
Also if food is 'rotting' because he is sitting in a truck for perhaps a day longer? Perhaps it was rotting before?
Not saying civil unrest isn’t a possibility, but I’m not sure economic uncertainty could do any worse than airborne-once-in-a-lifetime pandemic
Where was this? I had a few trips to the grocery where specific items were out of stock or rationed (i.e. limit 2 per customer), but never saw a shortage of processed meats.
From what I see of human nature, most people are willing to accept a good deal of change and discomfort before they are willing to jeopardise their relatively stable & comfortable lives (relative compared to countries where you actually see armed uprisings, revolutions & civil war).
It’s part of our founding mythos and reinvents itself in all sorts of contexts.
Doesn’t mean it is at all realistic for our present circumstances. I don’t happen to think so. An increase in stochastic violence? Sure. Actual, organized civil war? No chance.
With a paralyzed legislative body, tensions are likely to grow in the future as the government fails to deliver reforms that either side wants while simultaneously beating the drums on issues that both sides refuses to compromise on.
Throughout much of 2020, both the dominant media narratives and political leaders of the Democrats were very supportive of violence during the BLM movement. Riots and looting were legitimized as "the voice of the unheard", threats of more violence if key court decisions didn't go the desired way were made by prominent leaders and were tolerated or encouraged by the mainstream media, corporate America essentially "gave in to the terrorists" and did anything necessary to avoid being targeted.
And then Jan 6th happened, and all of us on the left suddenly realized that the other side might start using violence to achieve their goals too. It was a scary wake-up call that maybe we should focus on peaceful progress within the existing democratic framework instead of the "boots on the street making demands" approach we had found so successful.
Without the encouragement and approval of violent means from senators and CNN anchors for months during the racial justice protests, there's no Jan 6th event. As long as the leaders go to a "no violence" messaging instead of a "violence is necessary and acceptable when these groups do it" I think we'll have a peaceful 2024.
Ive stepped on a hornets nest in my comment quite negatively voted.
I too am a non-US perspective and 'boogaloo boys' aren't going to be a major factor at all.
>From what I see of human nature, most people are willing to accept a good deal of change and discomfort before they are willing to jeopardise their relatively stable & comfortable lives (relative compared to countries where you actually see armed uprisings, revolutions & civil war).
Never in my life have I seen polarization so bad. According to what I read the only ever time it was this bad was the first civil war.
You know what's weird. I predicted there would be self-immolations similar to arab spring and we are getting it. Black, incel, and environmentalist self-immolations in the USA. https://www.msn.com/en-gb/news/us/activist-s-self-immolation...
I even imagine as well. Lets say midterms happen and there's a clean sweep by the democrats. What happens?
How about the republicans sweep the election?
In terms of farmers retiring with a non-zero reduction of food produced but also farmers in north america getting more $ to ship their food overseas. In addition to food inflation pushing food prices up to unaffordable levels.
I agree with biden, food shortages will be happening.
Do immigrants always bring violence? Why did their states fail anyway? Could we have had a hand in that, bear some responsibility?
Whatever the specifics of the answers you see to these questions your comment sucks. It's using racist fears to stoke xenophobic resentment.