Print

Please login or register.
1 Hour 1 Day 1 Week 1 Month Forever
Login with username, password and session length

[McTraveller]

It's not that hard to understand really.

High employment growth rate and low unemployment is a wage growth pressure, which can sustain inflation: if you give people more money to spend, without increasing production, then prices are likely to increase (or stay high, if they are already high).

Cheap debt is also a pressure for increasing inflation, because if there is more money flowing around, then, again, without an increase in production then prices will increase (all else equal).

The difficulty the Fed faces is that even wages can be debt-financed.  This means that increasing the cost of borrowing can reduce demand for labor. So the Fed is stuck with a lever that helps achieve one mandate while simultaneously making it more difficult to achieve the other.

As for Wall Street and interest rates, it's more straightforward because there are fewer competing effects: lower interest rates mean both cheaper capital for companies and increased demand for their goods/services, because it's cheaper for customers to finance buying whatever it is that company makes. So this helps companies both on the top and bottom lines: lower costs, higher sales.

What you really want as a lever to help with inflation, but not as adversely impact inflation, is a way to increase supply of goods so that you have "enough goods chasing the money" instead of "too few goods chasing too much money".

This can't easily be done with just financial tools though. Part of the difficulty is that in a physical universe, it's not always easy to just increase production, or some unexpected event disrupts production, or some event causes a massive demand spike (e.g., some popular person says to go buy This Brand thing, so demand suddenly spikes), etc.  Because companies (and all of society, generally) is incentivized to operate with as little spare capacity as possible (because that's lost profits, yo!), any disruption easily limits supply.

One easily-comprehended option would be to have strategic reserves not just of a few commodities but as many commodities as possible. Why not a strategic milk reserve, or egg reserve, or tennis shoe reserve, etc.  If you have a store of goods, then it's easy to see that this smooths out any sudden supply (or demand!) changes.  With modern just-in-time systems, the buffer is essentially nonexistent, which can often lead to instabilities.  At the very least the US tax code could change so it doesn't penalize companies from holding inventory like it does today.

That's just the basic economic / controls system theory though - it doesn't even get into the political aspects (which I want to avoid in this thread) where some institutions want there to be instability.

[zhijinghaofromchina]

Interesting - rather than "about 1000 dollars per year", what is it in terms of hours of minimum wage where you are? Or in terms of, how does "100 dollars per month" compare to say your monthly rent/house payment, or how much groceries for a month typically cost?  How does "1000 dollars a year" compare to a starting salary once you'd graduate?  (When I graduated college, my starting salary for one year was basically the cost of two years of my college; That is, my private college cost about $25000 a year*, and my first salary after graduating was about $50000/year.)

I never like simple currency conversion; I prefer comparing to actual cost of living things.

For example, where I live and my family situation, our housing costs (house payment, utilities) costs about 2.5x what we spend on groceries for my family.

Spoiler: * (click to show/hide)

Full disclosure: I had a 75% scholarship, so I only had to pay about $25000 out of pocket for my degree.  But the $25k/year was the "list price" at the time, so to speak.

As you can say I Live in a barrack-like dormitory , 6 boys sharing one small room , so the rent or house payment is very very low. about 220 dollars per year . And the cost of daily groceries is about 220 dollars per month . Scolorships are for the guys who rank high in the GPA , it's hard to get one . After I get my bachelor's degree, it's hard for me to get a job due to the economic situation and the university major I choose , I must get a master degree, and starting salary for one year after I get my master degree is about 22000 dollars after tax per year , it can easily afford my bachelor's degree.

Haha, now I am a littel envy about the high salary you get . 

[EuchreJack]

For those who don't know, this is our future in the United States. If you can hold out, and save, the housing crisis will fix itself, and swing the other way.

Our crisis is too many Boomers sitting in their homes. That ain't gonna last forever.

[Maximum Spin]

For those who don't know, this is our future in the United States. If you can hold out, and save, the housing crisis will fix itself, and swing the other way.

Our crisis is too many Boomers sitting in their homes. That ain't gonna last forever.

This is a common misconception based on a false assumption about population dynamics. The US population is projected to continue expanding until nearly the end of the century, and quite possibly longer. Japan's has been falling for over a decade to reach this point (falling significantly faster than the US population is projected to even after the turning point), and they have extremely low immigration. As "Boomers" die or otherwise vacate their houses, there will be - already are - "too many Gen Xers" ready to snap the properties up, followed by "too many Millennials", and so on. The Japanese dynamics don't apply because there's no point, at least for a very long time, when the pressure actually relaxes.

ETA: Not to mention that, under current law in most major cities and heavily populated areas, the deck is hugely stacked to favor renting, so newly vacated homes are more likely to be bought by large corporate property managers and refitted into shoebox apartments, a fate from which they will never return.

[McTraveller]

It's also too easy to think that "the US" is a homogenous situation - making a statement about the housing markets and population as a US aggregate number hides a lot of detail behind averaging effects.

It's much more interesting looking at differences between urban, suburban, and rural areas; trends in specific states, etc.

[Maximum Spin]

Well, there is still a gestalt, and seeing that gestalt isn't the same thing as assuming the US is homogeneous - the gestalt is built out of all the little effects that you must understand to understand the gestalt fully. A hopelessly detailed analysis which ends up saying nothing useful is another failure mode, so I'd caution going too far in either direction. But yes, there are definitely interesting things going on at those scales, like the decline of certain major cities.

The collapse of the commercial real estate market also represents a huge opportunity to realign the housing market if we're, as a people, willing to accept certain drawbacks.

[EuchreJack]

I would like to see more population studies. The only one I saw was a clear Government Propaganda piece. It said "and only in 2024 do we expect a very high number of immigrants." How exactly do they see that magic happening? 

But yes, I am genuinely interested in reviewing population studies.

[McTraveller]

People are still confused about inflation.

Simple example: "record corporate profits are a sign of greedflation!"

But if you had constant inflation, and basically stable corporate performance, every single year would have record profits ... in nominal terms.

I haven't seen many reports on if we experiencing record nominal profit, or if we are experiencing record profit margins.  The latter is the one that could indicate price gouging, not the former.  Although in fact you'd probably have to look at both nominal and margin to get a clear picture; profit margins (and nominal increase) can also occur without a change in total company revenue due to efficiency gains.

[Maximum Spin]

Oh yeah, that one drives me up the wall. Even in the absence of efficiency gains that you mention, increasing real profit margins still aren't indicative of "price gouging", which is basically impossible to prove in a restricted, not fully competitive market. Stagflationary conditions could generate increasing real profit margins, as inflation becomes more "cost-push"-like and prices scale proportionally to the change in materials costs, while a stagnating labor market holds labor costs back from growing to the same proportion. It's pretty easy to see that any situation where inflation is highly uneven, so some costs are growing enough to drive price increases while others are not, can lead to the same outcome. After all, since the economy is tightly connected and cost increases "reflect" all throughout it, it would be natural for prices to rise proportionally to large cost increases and not necessarily the average price increase overall - everyone's got to cover that new cost, including the places the profit goes.

ETA: Let me expand on that because I think it's something people often miss. Suppose you own a business selling boutique popup bodegas or something. Suppose that fuel costs went up 10%. Now, your own business fuel costs, of course, go up 10%. But on top of that, you yourself drive to work every day, and you also like to eat food which was brought in by trucks that use fuel (and prepared by people who also drive to work every day, and also eat food), and you get parcels delivered by truck when you shop online, and, and, and... so you need to cover your own costs increases too; if you only raise prices enough to cover the costs to your business, your own standard of living falls. You need to increase prices enough that your profit pays for all your cost increases, even if only a relatively small part of your business expenses are exposed to the price of fuel so those costs went up by less than 10% overall. And then your own price increase affects the expenses of everyone who buys from you. Because everything depends on everything else, the overall cost increase in the economy ends up approximating that 10% for everyone, even though not everything is fuel. End ETA.

The idea of sustained, coordinated economy-wide "price gouging" was always a silly fantasy anyway... if "greedflation" were a thing, the money would end up flowing to large institutional banks overall, not the kind of corporations we do everyday business with. Certainly, they get richer no matter what, but that's indistinguishable from any other kind of inflation - it's a Cantillon effect. In any case, in my opinion, the federal reserve data pretty clearly destroys the "greedflation" narrative - here's a pertinent document: https://www.federalreserve.gov/econres/notes/feds-notes/corporate-profits-in-the-aftermath-of-covid-19-20230908.html

[McTraveller]

I saw a comment on a different forum today (one on which I don't post, only read) that said something like "Doesn't <the administration> know that loan forgiveness means those loans still have to be repaid <by taxpayers>?"

It's like they don't understand what loan forgiveness means... it means that the loan is forgiven, it doesn't have to be repaid.

I guess the difference between "someone else pays it off" versus "the people that supplied the funds to originate the loan just lost their income", which is assuming they were sourced from actual funds rather than created by fractional reserve, which I highly doubt (that is, I'm pretty sure these were created funds, not borrowed funds).

How is it that our education system has failed so badly that so many people don't understand these basics about loans?

[hector13]

Are forgiven loans treated as income?

[McTraveller]

As I understand it, some of the forgiveness is not counted as income, but some is. I don't know the details.

[Maximum Spin]

I saw a comment on a different forum today (one on which I don't post, only read) that said something like "Doesn't <the administration> know that loan forgiveness means those loans still have to be repaid <by taxpayers>?"

It's like they don't understand what loan forgiveness means... it means that the loan is forgiven, it doesn't have to be repaid.

I guess the difference between "someone else pays it off" versus "the people that supplied the funds to originate the loan just lost their income", which is assuming they were sourced from actual funds rather than created by fractional reserve, which I highly doubt (that is, I'm pretty sure these were created funds, not borrowed funds).

How is it that our education system has failed so badly that so many people don't understand these basics about loans?

What they mean is that, if the asset representing payment of the loan is taken off the government balance sheet, the balance will have to be made up by either tax receipts (not in this economy!) or debt and concomitant inflation. This is certainly true, and "if the loan is forgiven, it doesn't have to be repaid" is the more naive take.
Everyone's balance sheet has to even out one way or another, at the end of the day. Just as, if a bank forgives a loan, it now has less projected income going forward and must thus make fewer loans and/or offer less interest to depositors than previously expected, the same is true for the government. In practice, the government will keep barreling on with the same spending, but that does indeed mean that you're making up for the loan with every purchase you make as the entire economy has to soak up the loss.

[Frumple]

As I understand it, some of the forgiveness is not counted as income, but some is. I don't know the details.

As far as I can recall, it's neither consistent between jurisdictions nor types of loans.

There has been some concern over the (theoretical) forgiveness being taxed, because it does count as income under certain circumstances, but I don't remember it actually being that big of a concern (especially considering at the absolute worst you'd still be left with a debt a fraction of what it was) for (federal) student loans in particular.

You're assuming the folks in question don't understand the basic of loans, though. Intentional and malicious misinformation is entirely possible when you're dealing with that kind of mess, too.

[McTraveller]

Hrm. I had to do some reading; I didn't realize that such a high percentage of all student loans in the US was, in fact, federal; I thought more was private.  I think this was because my loan servicer was not the government but some random bank... or maybe that's just how the Direct loans worked...

It's still unclear, though, if the government is better spending "tax dollars" on loan forgiveness versus whatever we'd have to spend them on if we didn't forgive the loans.  No such thing as a free lunch, and all that...