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My 2 cents on it is that this isn't a bubble. It's just massive inflation that hasn't arrived at the consumer just yet. The pandemic created a massive problem f

My 2 cents on it is that this isn't a bubble. It's just massive inflation that hasn't arrived at the consumer just yet. The pandemic created a massive problem for economies, but that problem existed pretty much globally, so we didn't see any big shifts between countries. But what resulted was that every government worldwide created completely bonkers amounts of liquidity out of thin air and injected it into the markets so the economies stayed afloat. The good news is: They pretty much succeeded with that. We're all still here despite revenue generation for whole industries being frozen for more than a year. The bad news is: All that liquidity mostly ended up in just a few hands, and now it needs to go somewhere: The recipients at the end of the chain keep outbidding each other for a finite supply of value-keeping assets. Everybody is flush with cash with no place to park it. It may look like a "bubble of everything", but it's just the biggest increase of monetary supply we've ever seen in a long time. What to take from there and what will happen next, I don't know though. The usual relief valve of raising interest rates won't work anymore without making the debt level quickly unmanageable for governments. Usually I have a hunch on what will happen next, but this time I'm stumped. I also may be completely wrong.

jfengel 5y ago
I think that's a big chunk of it. It explains a question that's been nagging me: if we've been pumping money into the economy for over a decade, why isn't there inflation? Answer: there is, it's just asset inflation, not consumer inflation. Still, if real estate is one of those assets, that should have filtered down to the consumer level. Is it isolated away from most consumer real estate? Or has the real estate fraction of CPI actually been rising while something else is falling to compensate? (The latter should be easily testable, but I don't have time at the moment.)
- medium_burrito 5y ago
  I think the reason it hasn't hit consumers more is because most consumers cannot afford assets. The best analogy I can make is Ecuador, which although one of the poorest countries in SA has very high prices on average. It was explained to me that this is because government salaries are pegged to a certain rate, and that basically forms the middle class. All the poor cannot buy stuff anyway, so the high prices don't really matter in that sense.
- endymi0n 5y ago
  So my pet theory is: All conventional wisdom on inflation deals with the assumption that all money is equal. But we've come into an unprecedented situation where a lower and lower share of overall money is actually used in transit instead of being parked. You don't really notice all that invisible money, because in practice, inflation is really only tangible on the circulating part, that's why the overall supply increase doesn't _feel_ like inflation. That circulating part of money already has shrunk further and further, now probably down to single digit percents. What will happen if a big fish actually tries to cash in a large chunk of that invisible money for goods and services? No clue. We're in completely uncharted territory.
  - N1H1L 5y ago
    Economics does take that into account. Look up velocity of money. One of the easiest ways to increase money velocity is to have progressive taxation BTW
  - pydry 5y ago
    Why would there be a major cash in event? If history is any guide this wealth will be kept locked up and passed down to the next generation in perpetuity. And so on and so on, until a war destroys the capital base, kicking off a new cycle, or a revolution takes place (exceedingly unlikely, despite how much people talk about it). People talk about this level of wealth inequality as if it's unusual and destabilizing, but the gini coefficient of the Roman empire was frequently higher and it lasted for well over a thousand years. Indeed, I think it's quite likely that we're simply nearing the end of an anomalous period of history starting with WW2 where movement between social classes was unrestricted.
- Gibbon1 5y ago
  I saw saw a chart that showed the change in prices of stocks, bonds, real estate, consumer goods, and wages over ten years. What economists call inflation, wage and price inflation, was something like 13-17% total over 10 years. Where everything else more than doubled. We get gaslighted to only think about the wage and price inflation year over year rate. But not the the total relative change in prices over time. The latter is the important part.
  - heterodoxxed 5y ago
    One aspect I'm fascinated with is the way that consumer goods are continually dropping in price offsets the increase in necessities. We get a supercomputer in our pocket for $40 a month, but rent has ballooned. We can have hundreds of video games for free but we'll never own a home. And so on. We all get wikipedia for free, but a college degree is painfully expensive in a world that doesn't let you apply for jobs on the strengths of self-education. As someone on here said years ago, "I love my iphone but I worry about health insurance." What good is cheap frivolities if the necessary building blocks of life are skyrocketing.
    - Gibbon1 5y ago
      My dad's crusty friends refer to that as deflation for things you want, inflation for things you need. Also official reasoning about housing costs ignores that there are huge variations in that prices people have to pay to house themselves. The focus on average market rates hides the reality on the ground.
  - jfengel 5y ago
    I wouldn't call it "gaslighting". People need to eat, wear clothes, have a place to stay, etc., which is the kind of thing measured by price inflation. If that stuff is relatively stable then it doesn't matter nearly as much if stocks and bonds go up. That's a concern primarily to wealthier people who already have assets, and for them, the increases are double-edged swords. Them that has, gets. Them that doesn't -- i.e. young but upwardly mobile people -- are forced to play that high-risk game. The genuinely poor weren't playing that game to begin with, and could never retire, so they were always out of luck. The only thing they have going for them is social security, i.e. wealth transfer. It's not much, but the alternative would be absolute poverty, which is what it looked like in the early 20th century. I'm more concerned about them then about whether the wealthy stay wealthy, or even whether the young and upwardly-mobile can get assets.
- runawaybottle 5y ago
  You are asking the same question the Bank of Japan has been asking for a long time now. Pretty sure Japan had negative inflation just this last year, and they are right there with us in terms of making the money printer go brrrrr.
runawaybottle 5y ago
You are forgetting one big part of the irony of the 2008 crash. The first part of the crisis was that we basically gave free loans to people and anyone could get a loan to buy a house. Incoming poetry: It’s 2021, and we are basically giving interest free loans to people and anyone can buy a house. Right now since there’s fewer houses, the check on that loan is that those with cash or higher down payment get the house (the sanity check being that those with actual finances get it). When we make more houses, then it will be the same type of free for all over again. The economy is nuts. Lots of jobs won’t exist going forward. I don’t think everyone taking out a mortgage today will easily be able to make payments 7 years from now, even with 0% interest.
paulpauper 5y ago
The crypto bubble is already deflated, lasting a whole 4 months and then imploding over the past 2 weeks. Stocks have done really well in large part due to record profits and earnings from large firms. Look how much $ Disney makes for example. Consumer spending , intellectual property, click ads, recurring revenues on high margin digital products ..all that stuff. The fed is a contributing factor but not the only one. Crypto did really well in 2017 despite the fed raising rates.
- N1H1L 5y ago
  Yeah. Crypto has basically no gains in the whole calendar year. This article is already wrong.
  - nbardy 5y ago
    ETH is up 10x BTC is up 3x
    - heterodoxxed 5y ago
      Calendar year means YTD not 1 year.
simonsarris 5y ago
> The good news is: They pretty much succeeded with that. We're all still here despite revenue generation for whole industries being frozen for more than a year. I don't know. Lots of stocks and indexes that they are a huge % of are up because their revenue is actually really, really up. "The FAAMGs reported aggregate 1Q sales of $321 billion, some $24 billion or 8% above consensus, for year/year growth of 41%." (via zerohedge). That's huge.
- endymi0n 5y ago
  I don‘t disagree, but I think it‘s congruent with what I said: A lot of that actual, totally existent revenue was paid through individuals on unemployment benefits and corporations on life support. It wasn‘t „earned“ in a lot of cases, but still spent and ended up in the hands of the few companies who could just operate normally during the pandemic. The money is still real, but the overall supply is way more than 1,5 years ago.
mywittyname 5y ago
I think blaming this on government spending is missing the big picture. Yes, it was a contributing factor, but the primary driver of price increases in most sectors is scarcity. The pandemic brought about a scarcity of raw materials, scarcity of labor, and scarcity of shipping, all of which have contributed heavily to price increases. The trade wars brewing between countries have also contributed to scarcity. We've had times of massive government spending that coincided with strong deflationary pressure too. So it cannot be the case that all government spending leads to inflation. If we work entirely under that assumption, the we'll never address the problem because everyone will continue to keep wacking on the wrong thing. If we want lower lumber prices, the solution is to boost lumber production and imports. Not to halt government spending.
- adam_arthur 5y ago
  Exactly. Except the scarcity is largely driven by increased demand due to government stimulus. Look at the 5y chart of retail sales numbers here, and how it jumped significantly right after covid hit. https://ycharts.com/indicators/us_retail_sales https://ycharts.com/indicators/us_retail_sales The reason inflation hasn't shown up much in modern times is because supply chains are more elastic than they used to be, and are able to scale to meet new demand quickly. This way suppliers make money via increased volume rather than by raising price. However, we're now seeing shortages in goods that are hard to scale up quickly. For example, the chip shortage. In general, there are three ways out of a supply shortage. 1) Increase supply. Pretty straightforward. Setup a new factory or scale up production in existing factories. 2) Fall in demand. Perhaps could happen due to fading government stimulus and effective wages declining. However, lots of major corporations are raising wages significantly to compete for unskilled labor due to the current labor shortage. You will find a lot of articles if you google this... so waning stimulus may not be enough. 3) Raise prices. Look at any Supply/Demand chart, one of the axes is price. If supply isn't sufficient to meet demand, price tends to rise until the two are in equilibrium. Otherwise the supplier is leaving money on the table. Assuming increasing output is non-viable. My take is that 1) and 2) are mostly out of the picture for the chip shortage in the short term. I doubt new fabs or production capacity can be scaled up quickly to meet the backlog of demand in a reasonable timeframe... though I'm not an expert in the space. We'll likely end up with 3). Beyond specific shortages, shipping costs in general have skyrocketed, likely beyond the margin of many goods we import, which necessitates price increases on its own. Check the Baltic Exchange Dry Index. There's so much more that can be said here, but will avoid writing a huge essay :)
qzw 5y ago
Having a clear cause for asset value inflation is not mutually exclusive with having asset bubbles. In fact, a reasonable explanation for inflation can well serve as a catalyst for asset bubbles. Asset prices that increase modestly due to inflationary pressure can become overheated when the narrative of "buy today or you won't be able to afford it tomorrow!" takes over. Most people who are now bidding up real estate or other assets are driven more by FOMO than an analysis of what fiscal policy will lead to what degree of inflation. And inflation alone won't stop the bubble from bursting, because the same people who are operating on greed now will be operating on fear when the prices start declining, and any rational explanation of what the "right" value of an asset should be will do little to stop the panic selling at that point.
imtringued 5y ago
Nobody shouts deflation when bubbles pop.

jfengel 5y ago

I think that's a big chunk of it. It explains a question that's been nagging me: if we've been pumping money into the economy for over a decade, why isn't there inflation? Answer: there is, it's just asset inflation, not consumer inflation. Still, if real estate is one of those assets, that should have filtered down to the consumer level. Is it isolated away from most consumer real estate? Or has the real estate fraction of CPI actually been rising while something else is falling to compensate? (The latter should be easily testable, but I don't have time at the moment.)

medium_burrito 5y ago
I think the reason it hasn't hit consumers more is because most consumers cannot afford assets. The best analogy I can make is Ecuador, which although one of the poorest countries in SA has very high prices on average. It was explained to me that this is because government salaries are pegged to a certain rate, and that basically forms the middle class. All the poor cannot buy stuff anyway, so the high prices don't really matter in that sense.
endymi0n 5y ago
So my pet theory is: All conventional wisdom on inflation deals with the assumption that all money is equal. But we've come into an unprecedented situation where a lower and lower share of overall money is actually used in transit instead of being parked. You don't really notice all that invisible money, because in practice, inflation is really only tangible on the circulating part, that's why the overall supply increase doesn't _feel_ like inflation. That circulating part of money already has shrunk further and further, now probably down to single digit percents. What will happen if a big fish actually tries to cash in a large chunk of that invisible money for goods and services? No clue. We're in completely uncharted territory.
- N1H1L 5y ago
  Economics does take that into account. Look up velocity of money. One of the easiest ways to increase money velocity is to have progressive taxation BTW
- pydry 5y ago
  Why would there be a major cash in event? If history is any guide this wealth will be kept locked up and passed down to the next generation in perpetuity. And so on and so on, until a war destroys the capital base, kicking off a new cycle, or a revolution takes place (exceedingly unlikely, despite how much people talk about it). People talk about this level of wealth inequality as if it's unusual and destabilizing, but the gini coefficient of the Roman empire was frequently higher and it lasted for well over a thousand years. Indeed, I think it's quite likely that we're simply nearing the end of an anomalous period of history starting with WW2 where movement between social classes was unrestricted.
Gibbon1 5y ago
I saw saw a chart that showed the change in prices of stocks, bonds, real estate, consumer goods, and wages over ten years. What economists call inflation, wage and price inflation, was something like 13-17% total over 10 years. Where everything else more than doubled. We get gaslighted to only think about the wage and price inflation year over year rate. But not the the total relative change in prices over time. The latter is the important part.
- heterodoxxed 5y ago
  One aspect I'm fascinated with is the way that consumer goods are continually dropping in price offsets the increase in necessities. We get a supercomputer in our pocket for $40 a month, but rent has ballooned. We can have hundreds of video games for free but we'll never own a home. And so on. We all get wikipedia for free, but a college degree is painfully expensive in a world that doesn't let you apply for jobs on the strengths of self-education. As someone on here said years ago, "I love my iphone but I worry about health insurance." What good is cheap frivolities if the necessary building blocks of life are skyrocketing.
  - Gibbon1 5y ago
    My dad's crusty friends refer to that as deflation for things you want, inflation for things you need. Also official reasoning about housing costs ignores that there are huge variations in that prices people have to pay to house themselves. The focus on average market rates hides the reality on the ground.
- jfengel 5y ago
  I wouldn't call it "gaslighting". People need to eat, wear clothes, have a place to stay, etc., which is the kind of thing measured by price inflation. If that stuff is relatively stable then it doesn't matter nearly as much if stocks and bonds go up. That's a concern primarily to wealthier people who already have assets, and for them, the increases are double-edged swords. Them that has, gets. Them that doesn't -- i.e. young but upwardly mobile people -- are forced to play that high-risk game. The genuinely poor weren't playing that game to begin with, and could never retire, so they were always out of luck. The only thing they have going for them is social security, i.e. wealth transfer. It's not much, but the alternative would be absolute poverty, which is what it looked like in the early 20th century. I'm more concerned about them then about whether the wealthy stay wealthy, or even whether the young and upwardly-mobile can get assets.
runawaybottle 5y ago
You are asking the same question the Bank of Japan has been asking for a long time now. Pretty sure Japan had negative inflation just this last year, and they are right there with us in terms of making the money printer go brrrrr.

runawaybottle 5y ago

You are forgetting one big part of the irony of the 2008 crash. The first part of the crisis was that we basically gave free loans to people and anyone could get a loan to buy a house. Incoming poetry: It’s 2021, and we are basically giving interest free loans to people and anyone can buy a house. Right now since there’s fewer houses, the check on that loan is that those with cash or higher down payment get the house (the sanity check being that those with actual finances get it). When we make more houses, then it will be the same type of free for all over again. The economy is nuts. Lots of jobs won’t exist going forward. I don’t think everyone taking out a mortgage today will easily be able to make payments 7 years from now, even with 0% interest.

paulpauper 5y ago

The crypto bubble is already deflated, lasting a whole 4 months and then imploding over the past 2 weeks. Stocks have done really well in large part due to record profits and earnings from large firms. Look how much $ Disney makes for example. Consumer spending , intellectual property, click ads, recurring revenues on high margin digital products ..all that stuff. The fed is a contributing factor but not the only one. Crypto did really well in 2017 despite the fed raising rates.

N1H1L 5y ago
Yeah. Crypto has basically no gains in the whole calendar year. This article is already wrong.
- nbardy 5y ago
  ETH is up 10x BTC is up 3x
  - heterodoxxed 5y ago
    Calendar year means YTD not 1 year.

simonsarris 5y ago

> The good news is: They pretty much succeeded with that. We're all still here despite revenue generation for whole industries being frozen for more than a year. I don't know. Lots of stocks and indexes that they are a huge % of are up because their revenue is actually really, really up. "The FAAMGs reported aggregate 1Q sales of $321 billion, some $24 billion or 8% above consensus, for year/year growth of 41%." (via zerohedge). That's huge.

endymi0n 5y ago
I don‘t disagree, but I think it‘s congruent with what I said: A lot of that actual, totally existent revenue was paid through individuals on unemployment benefits and corporations on life support. It wasn‘t „earned“ in a lot of cases, but still spent and ended up in the hands of the few companies who could just operate normally during the pandemic. The money is still real, but the overall supply is way more than 1,5 years ago.

mywittyname 5y ago

I think blaming this on government spending is missing the big picture. Yes, it was a contributing factor, but the primary driver of price increases in most sectors is scarcity. The pandemic brought about a scarcity of raw materials, scarcity of labor, and scarcity of shipping, all of which have contributed heavily to price increases. The trade wars brewing between countries have also contributed to scarcity. We've had times of massive government spending that coincided with strong deflationary pressure too. So it cannot be the case that all government spending leads to inflation. If we work entirely under that assumption, the we'll never address the problem because everyone will continue to keep wacking on the wrong thing. If we want lower lumber prices, the solution is to boost lumber production and imports. Not to halt government spending.

adam_arthur 5y ago
Exactly. Except the scarcity is largely driven by increased demand due to government stimulus. Look at the 5y chart of retail sales numbers here, and how it jumped significantly right after covid hit. https://ycharts.com/indicators/us_retail_sales https://ycharts.com/indicators/us_retail_sales The reason inflation hasn't shown up much in modern times is because supply chains are more elastic than they used to be, and are able to scale to meet new demand quickly. This way suppliers make money via increased volume rather than by raising price. However, we're now seeing shortages in goods that are hard to scale up quickly. For example, the chip shortage. In general, there are three ways out of a supply shortage. 1) Increase supply. Pretty straightforward. Setup a new factory or scale up production in existing factories. 2) Fall in demand. Perhaps could happen due to fading government stimulus and effective wages declining. However, lots of major corporations are raising wages significantly to compete for unskilled labor due to the current labor shortage. You will find a lot of articles if you google this... so waning stimulus may not be enough. 3) Raise prices. Look at any Supply/Demand chart, one of the axes is price. If supply isn't sufficient to meet demand, price tends to rise until the two are in equilibrium. Otherwise the supplier is leaving money on the table. Assuming increasing output is non-viable. My take is that 1) and 2) are mostly out of the picture for the chip shortage in the short term. I doubt new fabs or production capacity can be scaled up quickly to meet the backlog of demand in a reasonable timeframe... though I'm not an expert in the space. We'll likely end up with 3). Beyond specific shortages, shipping costs in general have skyrocketed, likely beyond the margin of many goods we import, which necessitates price increases on its own. Check the Baltic Exchange Dry Index. There's so much more that can be said here, but will avoid writing a huge essay :)

qzw 5y ago

Having a clear cause for asset value inflation is not mutually exclusive with having asset bubbles. In fact, a reasonable explanation for inflation can well serve as a catalyst for asset bubbles. Asset prices that increase modestly due to inflationary pressure can become overheated when the narrative of "buy today or you won't be able to afford it tomorrow!" takes over. Most people who are now bidding up real estate or other assets are driven more by FOMO than an analysis of what fiscal policy will lead to what degree of inflation. And inflation alone won't stop the bubble from bursting, because the same people who are operating on greed now will be operating on fear when the prices start declining, and any rational explanation of what the "right" value of an asset should be will do little to stop the panic selling at that point.

imtringued 5y ago

Nobody shouts deflation when bubbles pop.