31 ms·

It’s mostly a demand shock, not a supply shock, and it’s everywhere

389 points by knasmai 5y ago

P00RL3N0 5y ago
I'm honestly surprised inflation hasn't been worse than what we've already seen. 10-year treasury yields are still well below their 2019 levels and are currently below their levels from Q2 of this year.
- anm89 5y ago
  It is worse than what we've already seen if what we've already seen is CPI
- nwiswell 5y ago
  Do treasury yields actually have a causal relationship with anything besides the demand and supply of treasury bonds? I don't see any reason why we can't have a negative real yield (indeed, I suspect that is presently the case).
  - P00RL3N0 5y ago
    You may be right on the negative real yield. My thinking was that, ceteris paribus, if expected inflation is rising I would expect interest rates to rise as well. QE has likely been playing a large role in muting this effect.
    - pishpash 5y ago
      The metric you want is the breakeven rate, the difference between nominal Treasury yields and TIPS yields (which are indeed very negative). https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misallocation of capital can't be good. Real yields have been negative out to 30 years for some time now, meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!
      - hogFeast 5y ago
        There is actually a parallel effect of QE that no-one really wrote about: it causes a shortage of risk-free assets, and makes it harder for savers to fund liabilities. I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked"). So we have the amazing situation where you will get funding for a project, but only if you promise to lose money. Investment into real assets is extremely low, chemicals and O&G are trading on mid-single digit P/E ratios, and are furiously trying to return capital...whilst we have massive shortages...it is a very unusual situation. And, imo, the cause of this is the shortage of risk-free assets (because creating this shortage, due partly to regulatory restrictions, did not mean that investors suddenly started making investments into the real economy...most couldn't...they just had to buy more "risk-free" assets from corporates who already had too much money or PE funds that were playing the capital cycle...ofc, no central banker understands that some institutions are limited, the textbook doesn't teach that, they don't understand it).
        richiebful1 5y ago
        I don't think it's that Jerome Powell doesn't understand. Rather the central bank only has a few tools (interest rates/QE) to nudge the economy in the right direction. It takes real policy (Congress and the White House) to direct the investment to the more sustainable long-term investments
        pishpash 5y ago
        Here is the problem: if Powell is too successful with monetary tools, what incentive does it leave the policy side to do anything at all? He isn't powerless to force policy action by holding the line, but understandably he's more interested in keeping his job.
        naveen99 5y ago
        > shortage of risk-free assets Risk free assets don’t exist. So by definition, they are always in short (0) supply. Even treasuries are at currency, inflation, and interest rate risk. If you are using risk free as a synonym for us treasuries , that’s what qe has been pumping into the system. Are you saying you want even more qe ?
- mattnewton 5y ago
  I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price they paid for it 3 years ago.
  - hogFeast 5y ago
    There was an article the other week from Canada about their CPI (I can't find it right now). Their CPI calculation was using prices that were half those available in stores (butter was one product, there are large variations in prices for some primary products in Canada because of producer's co-operatives particularly in dairy), and used sizes for some products that haven't existed for decades. CPI calculations are very tricky. Deflation in telecoms, for example, has been very understated because how do you compare a data plan with a voice plan (in the UK, they had to adjust two decades of CPI numbers because of this calculation error). Imo, we place far too much reliance on CPI which is, after all, only one measure of inflation. Everyone seems to believe that prices are rising faster than CPI, and they would probably be right (I am in the UK, food prices in Canada particularly are...out of this world...particularly for meat, which seems to cost at least 3x the price here).
    - clavicat 5y ago
      Is [this](https://www.thestar.com/business/2021/10/23/experts-say-statcan-doesnt-capture-the-high-food-prices-we-see-in-stores-and-it-could-be-because-the-big-grocers-supply-the-data.html https://www.thestar.com/business/2021/10/23/experts-say-stat...) the article?
      - hogFeast 5y ago
        Yes.
        5y ago
- 01100011 5y ago
  It feels to me like assets all inflated first, and when that failed to pop it was an omen of the future inflation which would follow. It seems like there is a tsunami of inflation that is just starting to hit the economy, and because of the early asset bubble it is too late to find obvious safe havens to protect inflation vulnerable assets. Your choice at this point, barring some insider information on specific companies, seems to be to have to follow the FOMO wave into an already insanely overvalued market with the hope that you can get out before it all comes crashing down.
- ovone 5y ago
  Totally agree. We have been living a long period of low inflation with a huge QE at the same time...
lisper 5y ago
It's a plausible theory, but it doesn't explain the long queues of container ships waiting to be unloaded.
- waynecochran 5y ago
  Certainly shutting down the economy is a factor too.
  - vkou 5y ago
    From a cursory glance at I-5 traffic outside my window, besides for ~5 weeks in 2020, it does not seem like the economy was shut down.
    - asdff 5y ago
      Yeah not much of a shutdown, in LA seems like retail and restaurant workers were back working pretty fast, only a handful of places by me failed to pivot into takeout orders and shut down, I'd say 9/10 restaurants anecdotally are still open today which is about what I'd see with typical restaurant turnover over these two years anyhow even in the before times. The city only felt empty for like a month, then it was back to business as usual only with masks on. Traffic picked up again pretty quick. It was only bars and large events that suffered and even then, those have been back for a long time now (at least for bars, restaurant bars with outdoor dining even longer).
- formercoder 5y ago
  Demand shocks would manifest themselves as bottlenecks in different places along the supply chain as supply attempted to catch up.
  - konfin 5y ago
    We're not seeing increased throughput.
  - asdff 5y ago
    That's not whats observed at the ports. Relative to before the pandemic in LA, container tonnage is down, container volume is down, cargo value down, the number of vessels serviced is down, as well as revenue all down. By all accounts the port just seems to be working at a reduced capacity than even before the pandemic, rather than moving a larger amount of goods than what was 'normal' and struggling to keep up with increased demand. Seems they just can't keep up the numbers seen under normal demand at least at the port of LA. https://www.portoflosangeles.org/business/statistics/facts-and-figures https://www.portoflosangeles.org/business/statistics/facts-a...
airstrike 5y ago
For anyone else thrown off by the use of "MP3" to refer to anything other than the file format, here's https://medium.com/alpha-beta-blog/the-three-stages-of-monetary-policy-cce4fa116a59 https://medium.com/alpha-beta-blog/the-three-stages-of-monet...
- sdenton4 5y ago
  it's 2021... People should just switch to Opus. The lower latency should wrap up the supply/demand buffering problems nicely.
- asdff 5y ago
  Nitpick but nothing grinds my gears more than people using niche acronyms without first defining them in long form, especially when its something like MP3 that's going to give you a million hits of the wrong result when you try and search for a definition.
  - ev1 5y ago
    In all fairness, the intended readership of that blog would know it. It's like handing a random technical Go or Rust post to a strictly-business non-technical person.
    - asdff 5y ago
      Even in my highly technical field we still define acronyms when they first appear in a manuscript, since while everyone works in the field maybe not everyone works in this specific niche and is familiar with all the jargon. Editors or reviewers will want to see it defined in long form. It's really just lazy writing to not do it.
monksy 5y ago
Warning: The site withholds the content unless you agree to terms.
throwaway2331 5y ago
For anyone scratching their head on what "MP3" is: monetary policy 3, i.e. "helicopter money," i.e. "the government be handin out them stimmies," i.e. the government injected COVID-19 relief funds into the economy, giving an across-the-board increase in demand for goods & services, but there aren't enough "goods & services" to keep up with this demand.
- asdff 5y ago
  The government didn't even grant people a months worth of rent in my city. Not sure how that lead to such a huge infusion of demand that continues to persist, unless there are just that many people with very little rent who are driving this demand. Seems like such a small amount in the grand scheme of things considering most people even working a minimum wage job might see more money back on a tax return than the measly $1200 that's been dispersed.
  - 300bps 5y ago
    It isn’t just direct stimulus to private citizens. It’s the near zero interest rate policy, the literally illegal purchasing of mortgage and corporate bonds by the fed and so much more that is flushing the entire economy with trillions of dollars.
    - asdff 5y ago
      So what exactly happens in between the fed purchasing mortgage bonds and allegedly consumer driven supply runs on everything from toilet paper to golf clubs?
      - 300bps 5y ago
        Bond rates move inversely to price. As the fed buys bonds, it raises the price which lowers the rate. As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy. Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thin air. The reason why corporations borrow more is because with a lower WACC (weight average cost capital) they can invest in more projects (I.e. spend money) for any initiative that has a positive NPV.
drunkpotato 5y ago
WARNING: This site has an obscenely obnoxious terms & conditions blocking modal. I would prefer this link to be removed, it is so egregious. Post something, or don't. Don't put up a blocking modal to force me to read some terms & conditions before reading the actual content.
- dustintrex 5y ago
  Nearly all investment management companies do this, I presume because of SEC rules.
- madars 5y ago
  Crazy how much more pleasant web is with uMatrix. I did not even notice this until you pointed it out
- satronaut 5y ago
  i really miss the pre 2011 internet sometimes
- pembrook 5y ago
  Bridgewater would love to show you their content without the modal. The only problem is, the lawyers who interpret things the US government says, are requiring them to show it. Unfortunately, the government has decided you're too stupid to critically read words written by an investment firm. Your elected representatives believe you need to be reminded that investment firms might be writing bullshit to try and take your money. The only problem is, if you're too stupid to use critical thinking when reading words on the internet, you're also not likely to be the type of person who would read a terms & conditions. Welcome to exciting world of well intentioned but poorly thought-out legislation with hilariously irrational unintended consequences.
  - RNCTX 5y ago
    Incompetence on the part of a finance company is not the fault of the government. They pay the government to do what the finance company wants. Nice try, no sale.
dustintrex 5y ago
The article doesn't answer the obvious question though: what next? The various pandemic subsidy packages are by and large being wound down, which implies that demand should start dropping quite soon as well.
- Maximus9000 5y ago
  Also, as the pandemic fades, people will probably start spending more money on services and less money on goods.
- anm89 5y ago
  Bridge water is very much on the record saying what they think comes next. Inflation, low rates, poor performance for bonds, poor performance for many assets.
  - qPM9l3XJrF 5y ago
    Where are they investing then?
    - anm89 5y ago
      If I had to channel Ray Dalio he would say: - Keep your Beta as high as possible, you want to be as diversified as possible heading into a difficult environment - Cash is trash - Value will accrue to real assets and hard money. Real estate, equities with consistent cash flows and strong books, commodities, crypto, land, natural resources. These kinds of things There are plenty of videos of him on youtube going deeper on all of these topics
  - clavicat 5y ago
    That was my thesis all summer long, but bond yields have remained stubbornly low and the stock market just had a blowout October even as inflationary pressures picked up amidst the Evergrande crisis and the debt-ceiling crisis. I’ve given up thinking that there is anything that can bring down this market and will no longer fight the trend.
zz865 5y ago
I can remember when a year ago everyone agreed they were happy with consuming less and spending time with the family. Looks like that didn't last long, everyone is out shopping again.
- megablast 5y ago
  Everyone?? Are you just making stuff up to argue about??
- Jensson 5y ago
  USA never stopped consuming, they just import more and more. Trade balance is even more negative now than before the great depression, there should be a correction happening real soon: https://tradingeconomics.com/united-states/balance-of-trade https://tradingeconomics.com/united-states/balance-of-trade
  - qPM9l3XJrF 5y ago
    What sort of correction?
    - Jensson 5y ago
      On average countries has a trade balance of 0, it means that a country buys as much goods and services as it sells. USA is buying more and more goods and services without selling more, as you can see in that graph, and that has been going on for 50 years now. The correction would be that USA no longer can import goods without paying anything back, stopping all the shipment problems you have now since people no longer want to ship goods to USA. That would be a trillion worth less of raw imports per year according to the current deficit.
  - asdff 5y ago
    We can't afford not to import goods. The cost of manufacturing in the U.S. are too high relative to other parts of the world. Can't do anything about that on our end of the deal short of tarriffing ourselves into total economic isolation and being forced to produce everything nationally.
exogeny 5y ago
Addressing a few different comments because it may not be known: Bridgewater is a hedge fund. One of the bigger ones, and most successful. Kind of old school. But because of this, any content that they disseminate must be very clearly be labeled at opinion/research and not investment advice. This is the reason for the obnoxious modal. This one can't be avoided. The email newsletter upsell, however...
hogFeast 5y ago
First really thorough analysis of this situation that I have seen. It is surprising that this observation isn't more common, it is very obvious from looking at sectoral balance sheets...but, I suppose, not many people do this (it is odd to me that what was done during the pandemic had literally never been tried before, there was no economic logic for doing so, and no economist said: hold on, is this a good idea? And still, just a crowd of nodding dogs...you can only rely on an economist for a convincing explanation of what was happened, never the future, never creativity, never analysis). One point that I don't think is made clear. Because this problem is totally artificial, it isn't clear how you solve it. Clearly, prices are going to have to increase substantially to choke off demand. But even once you do that, there is a question in some industries of whether supply can increase at all. Some big industrials are trading on mid-single digit P/E ratios, they just can't get money (most are actually being incentivized to return this, repeat that: shortage of almost everything, the market is telling them...reduce supply urgently). There is a flood of money for "risk-free" investments and tech (read: unprofitable, never going to be profitable but has value because you might be able to convince someone that you will be profitable...eventually), everyone else is being starved to death. It is quite terrifying because the govt has managed to debauch almost every price in the economy. Nothing is working.
- ClumsyPilot 5y ago
  I think we can finally label neoliberalism a failure, it cant even direct capital to productive industried
  - hogFeast 5y ago
    It can. The govt has stopped it doing so.
sicromoft 5y ago
Here's the content without the obnoxious modal: https://archive.md/OTsRH https://archive.md/OTsRH
ArtDev 5y ago
"Household balance sheets are now in a materially better state than they were pre-pandemic". I think this is completely of touch with the realities faced by different slices of society. I am a web developer who was working from home for many years before the pandemic. My experience is not even remotely similar to most people in the US. Edit: this article is written by a hedge fund. So they definitely live in their own little world too.
- seemaze 5y ago
  "Governments transferred a massive amount of cash to households, more than offsetting lost income from COVID." I don't understand this calculation either. It does not fit my own experience, or anyone else I know.
  - adriand 5y ago
    Likewise. I mean I do seem to have more money than before but almost none of it came via government transfers. I think we got $800 for our kids because they were schooled from home for a year or whatever. The rest is just not having things to spend it on, primarily eating out and travel. I certainly agree that huge numbers of people here in Canada benefited from government money to replace lost wages but they were mainly people in service industries who are hardly “wealthy”. So for real, what does this mean? Obviously in aggregate when you write a cheque to every person for $X it adds up, which is what I think happened in the US, but does it create wealthy households?
    - danjayh 5y ago
      Wealthy? No. Flush with rapidly devaluing cash? Yes. A family of 5 with with 2 parents and 3 kids under 6 years old got a total of $19,300 (counting the monthly child credit payments), provided they didn't go over any of the arbitrary income thresholds.
paul7986 5y ago
Seems like all that free money and no one working has definitely caused a supply issue ... yet everyone has tons of money furthering pushing up demand yet supply to meet the demand has shrunk. For those who push for a universal basic income where large groups of people do not work ... do not help produce the supply only push up the demand. Why do you think UBI is still a good idea and you are perfectly fine with how things are now vs. how they were? *Please note i want workers to be paid more then fairly and when i go out i tip up to 30%, as well happily pay $60 to $100 for dinner at Applebees (or similar places) for a friend and or a date and myself.
- sdenton4 5y ago
  Because the obvious response to insufficient supply is to make more stuff, thereby growing the overall real economy. Yes, it's a lagging function. But it's frankly insane to insist that today's transient supply chain issues mean that people need to be paid less than a living wage in general... It's similar to the old argument over slavery. Yes, removing slavery causes large realignments in the economic system. But overall removing slavery grows the economy, both by encouraging automation of jobs people don't want to do and by increasing the number of people buying stuff and performing more productive labor. Add in additional points about recognizing basic human dignity as needed.
  - paul7986 5y ago
    Hmmm but I didn't say anything about wages which I'm very happy to pay more and do now .. tipping more then 20 percent, tipping sub makers at Jersey mikes and happy to pay up to $30 for a burger fries and drink at five guys. Going out to eat with a friend or a date is now a $60 to $100 affair at Applebees or places like it with tip. All good to me!
    - hooande 5y ago
      not necessarily disagreeing with you, but odd that you think your tip at applebee's is an argument against a basic income
iJohnDoe 5y ago
Are there any pre-COVID models predicting this occurrence? Do you think China started predicting an increase in demand before anyone else or do you they were surprised too?
- kristjansson 5y ago
  The argument is that the monetary policy response to the pandemic caused the demand shock, so seems unlikely that it would have been predicted ex ante.
throw0101a 5y ago
The "shock" is actually a bit more subtle than that: > Here's 10 years of the relationship between our consumption of goods and our consumption of services. It explains a lot about why we're experiencing bottlenecks and disruptions. We were simply not prepared for the massive uptick in goods consumption. * https://twitter.com/TBPInvictus/status/1456683999657615364 https://twitter.com/TBPInvictus/status/1456683999657615364 When people couldn't go out and do stuff (services) they started buying stuff (goods), and the supply chain couldn't handle the sudden surge… so now we have supply problems. The supply problems are often 'subtle' as well. For example, a few months ago softwood lumber in the US hit a peak of $1733/lot, and now it's down to 'only' about $600—which is still 50% higher than it historically ever was before. However there is a 'glut' in the supply chain because current inventories can't be shipped because… there is a shortage of truss plates: * https://en.wikipedia.org/wiki/Truss_connector_plate https://en.wikipedia.org/wiki/Truss_connector_plate Floor trusses can't be built, so even though you've built the first floor walls you can't go to the second because the floor framing—built using trusses—can't be laid down, so houses can't be finished. Further details about the current (Nov 2021) lumber situation on the most recent Odd Lots podcast: * https://player.fm/series/series-1504378/stinson-dean-on-the-lumber-crash-that-followed-the-boom https://player.fm/series/series-1504378/stinson-dean-on-the-... * https://www.bloomberg.com/news/articles/2021-11-08/transcript-stinson-dean-on-the-lumber-crash-that-followed-the-boom?srnd=oddlots https://www.bloomberg.com/news/articles/2021-11-08/transcrip... * https://www.bloomberg.com/news/articles/2021-11-08/how-a-2-metal-plate-defeated-the-laws-of-supply-and-demand?srnd=oddlots https://www.bloomberg.com/news/articles/2021-11-08/how-a-2-m... Similarly even if you built most of the house, you can't legally occupy it unless there's running water—and there's a shortage of faucets: * https://player.fm/series/series-1504378/the-bathtub-episode-how-the-pandemic-disrupted-plumbing https://player.fm/series/series-1504378/the-bathtub-episode-... So the demand and supply shocks dovetail 'nicely'. Worth checking out Bloomberg's Odd Lots podcast as they've done a number of episodes on the supply chain over the last year. There are ones specifically focusing on (US) ports, rail roads, and trucking.
skybrian 5y ago
It seems like there isn’t enough data backing up these claims, or at least not in convenient form. Where are the graphs of things like container throughput at major ports? Compare with the pandemic where it’s much easier to understand whether things are getting better or worse. Also, economic growth depends on the ability to remove bottlenecks and improve productivity. Yes, there is always another bottleneck. But idea that removing one bottleneck is pointless because there will be another one seems like giving up on growth? In particular, it seems unlikely that there is no way to build more housing.
surrealize 5y ago
Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good. If wage growth squeezes profits, then that's also good from a wealth inequality point of view.
- mrjangles 5y ago
  Yes I was wondering why economists would think this was a bad thing. To someone like me who knows nothing, this seems like an obvious good thing.
  - ODILON_SATER 5y ago
    There is no increase in productivity. Inflation can be very costly, especially for the most disadvantaged who do not have investments to hedge against the rise in prices. It may have a positive first order effect in the short run, but it is an elusive one. Inflation, if out of control, has the potential to bring the interest rate to levels that would turn borrowing extremely costly --therefore making acquisition of capital more expensive, affecting productivity. Another side effect is that the government debt could become extremely burdensome, which would force the government to essentially print money to pay its debts. That is effectively a tax (called _seignorage_) on the population. In order to pay its debts, the government prints money, which in turn makes goods and services more expensive --i.e. _seignorage_. High inflation can affect consumer behavior and depress economic activity, which would lead to unemployment, it happened many times, and it is called stagflation. A slower economic activity coupled with increase in prices could then make production more costly, which would push inflation even higher but also increase unemployment. The key here is whether inflation would get out of control. The Fed seems to banking on the idea that this high inflation is transitory, which means that despite its current high levels, there will be some accommodation in the medium run and things would go back to a stable and acceptable target level. Some, like the article above, does not think so. If that's the case, then the Fed will need to act soon.
- 5y ago
EdwardDiego 5y ago
> Further, those who left the labor force during COVID don’t seem particularly likely to come back, as most say they don’t want a job, and many are over 65 and are likely permanently retired Who was asked, and who did the asking to arrive at "most say"?
- a_bonobo 5y ago
  Exactly! The data makes the opposite point. https://hbr.org/2021/09/who-is-driving-the-great-resignation https://hbr.org/2021/09/who-is-driving-the-great-resignation >Employees between 30 and 45 years old have had the greatest increase in resignation rates, with an average increase of more than 20% between 2020 and 2021. >Interestingly, resignation rates also fell for those in the 60 to 70 age group
  - hammock 5y ago
    That's not the opposite.
    - throwawaygh 5y ago
      GP quote suggests on-time retirement (65+) while OP suggests not just not-retirement-age but actually prime-earning-age. Those seem pretty opposite to me? Anyways, raising a kid with two earners is too damn hard. That's what's really going on.
      - EdwardDiego 5y ago
        Yep, it's a bit crazy how most Western school systems I'm aware of are still designed like it's the 80s and every household has a parent at home full-time. E.g., school finishes early afternoon, large amounts of school holidays that dramatically exceed the annual leave entitlements of two parents combined, etc.
      - makomk 5y ago
        They're talking about two different things - one is about people leaving the labor force entirely, whilst the other is about people quitting their current jobs. Now, there might be some overlap but there doesn't necessarily have to be all that much because a bunch of people were made redundant earlier in the pandemic and some of them aren't going to return to working again.
guscost 5y ago
It’s a “people don’t like paranoid hypochondriac fascism” shock, and you know it.
anm89 5y ago
Who are these amateurs? They clearly have never actually had to trade markets. We haven't had inflation for 50 years! So how could we possibly have it now?
arthur5005 5y ago
What this doesn’t really address is the why? Yeah there’s more money floating around, so perhaps more people want to spend it, but why? Most people aren’t getting materially more stuff or even need that much more stuff, consumption’s already god damn conspicuous. Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion. To me, this still looks like the bullwhip effect, which is expected to have an outsized effect on demand over at least a year or two. Buyers, who got used to “just in time” shipping, got spooked by shipping delays and shortages from their suppliers, because of supply demand imbalances during shutdowns, and as a response they all put in orders for 2 to 3 times the amount they usually buy from their suppliers with the intent of rebuilding domestic stock so they don’t miss out on sales. All of a sudden, aggregate demand explodes. Shocking.
- tsywke44 5y ago
  Remote work. Hundreds of millions of well-off middle class people gained 2 hours of extra time and energy per day from not having to commute. Thats equivalent to a population boom.
  - prawn 5y ago
    And that puts more people at home looking at their surroundings thinking about how it might make sense to upgrade. "Well, I'll be looking at this place another 7+ hours a day." Which then puts demand on various hardware supplies and tradespeople. In our case, with the real estate market so hot, it makes sense to upgrade. Selling and buying a house has a stamp duty here of $50k on a $1m house, meaning it's fairly easy to justify $50k on internal renovations (updating bathrooms, flooring, etc) rather than upping and moving.
- Spooky23 5y ago
  It’s a whiptail effect. Shifts in demand and supply cascade and create unpredictable effects. For example, the rush on toilet paper triggered more production, which reduced pulp supplies, which constrained golf cart supply. Why? Seats are made from particleboard, made from pulp. Plus, golf courses bought more carts than usual due to lockdown restrictions.
mhalle 5y ago
It would be great if we could somehow turn the growth in discretionary income made possible by these economic policies into greater giving to public serving institutions (libraries, parks, etc) and other charitable contributions. COVID's impacts have not been proportional across the socio-economic spectrum, nor has the benefit of the economic stimulus.
- danjayh 5y ago
  Very true. A family of 5 with 3 toddlers making $50k/yr got $19,300 in stimulus and expanded child tax credit, whereas that same family would have gotten considerably less if they had a $200k/yr income. It would seem that the benefit of the economic stimulus was rather intentionally concentrated at the bottom and middle of the income curve, obviating the need for private charitable contributions. Let's also not forget that those in the top 20% already pay nearly 80% of the taxes, kinda seems like they're already doing more than their share.
  - mhalle 5y ago
    A family of 5 making $50k per year is one lost job away from poverty in much of the US, which was much more likely during the pandemic without assistance. They remain economically vulnerable, probably chronically. A family of the same side making $200k per year is not on the border of poverty anywhere in the US. Meanwhile, the public facilities used by both families such as parks were underfunded with the loss of tax revenue during the pandemic (and often before). Charitable giving is an opportunity to improve them without raising taxes. Without those inclusive civic institutions, those with means can go to private or for profit recreation and cultural options. Those who don't have nothing. It is disheartening to hear that emergency public assistance would be used as a rationale to "obviate the need charitable contributions".
noduerme 5y ago
So here's a thing. Covid can cause neurological damage to the brain's frontal lobe, beyond that implicated by the loss of taste and smell. Damage to the frontal lobe causes what Neal Stephenson referred to as "poor impulse control". I think the rise in violent incidents on airplanes is linked to this. Additionally, poor impulse control leads to impulsive spending and purchasing behavior. Compounded by lockdowns and government checks, the situation is that consumers have upped their consumption way beyond their means; but some of this I suspect is neurological as opposed to psychological. I think wild consumer demand just happens to be right now the most visible part of an iceberg of long lasting brain damage caused by covid, that our society is about to crash into.
jolux 5y ago
Just a warning that this is an article by a hedge fund expressing a view of our current inflationary period that I would argue is heterodox among the economic mainstream. I suggest reading Paul Krugman and Claudia Sahm for dovish views, or Adam Ozimek for a more critical view. In particular, the idea that “inflation expectations” can perpetuate inflation via a self-fulfilling prophecy effect has been called into question lately: https://www.federalreserve.gov/econres/feds/files/2021062pap.pdf https://www.federalreserve.gov/econres/feds/files/2021062pap...
- xyzzyz 5y ago
  What is most definitely a heterodox economic view is taking Paul Krugman seriously. He has fully become a newspaper opinion pundit, and very few people among academic economists pay much attention to him because of that.
  - deleted 5y ago
    [deleted]
  - TheCowboy 5y ago
    This simply isn't true when it comes to the topic of economics, and there are heterodox-y economists (Tyler Cowen for example) who also respect Krugman as an economist even if they don't agree with him on everything. As for paying much attention to him in academia, afaik he's not really active in the publish or perish academic game anymore so I don't get this as a criticism, but his influences are still there.
- ODILON_SATER 5y ago
  Claudia Sahm? Krugman? I rather listen to the hedge fund guys, at least they have skin in the game, don't they? Claudia Sahm is extremely partisan, and so is Krugman. You know it's going to be bad when we are starting to hear from the media that inflation is actually a good thing --because people have more disposable income to spend on things. First, it was just a blip, then they told us it would go away in half a year, now it is here to stay --but it is a good thing, see? The reality is that the explosive demand, alongside with a lagging supply can lead to an inflationary pressure not seen since the 1970s. At least in the 70s the information technology revolution was just around the corner. Right now, it feels like the supply issue cannot be remedied or solved because of heavy regulations and a stagnant productivity.
josh_today 5y ago
This is 100% a supply shock. I have colleagues in the import business and containers are impossible to get and when they do you’re looking at 2x pre covid prices.
WhisperingShiba 5y ago
This just in, investment firm thinks there should be more investment into the economy. More on this story and other, at 6PM pacific time.
pengaru 5y ago
Isn't a big part of the current problem that transport/delivery/shipping vessels and/or their portable containers have been forced to become part of the storage capacity? Does it really require much more than that to break the whole system down? You could have what was once a highly parallel system with tons of transport bandwidth brought to its knees and effectively serialized if not completely deadlocked by just overflowing your storage capacity enough to fill all the transport stuck in queues and other forms of holding patterns. Thought exercise: You have two warehouses surrounded with tons of loading/unloading docks, plenty of bandwidth capacity, but they're both full inside. You have 20 trucks available, and they too are all full of goods, 10 parked at the docks of one warehouse, the other 10 parked at the other warehouse. But nothing is happening, because all the trucks are full and waiting to unload, and all the warehouses are full. So you introduce a 21st truck that's empty, and it shows up at one warehouse, loads up, and moves the stuff to the other where it needs to go. What happens? Did you fix the problem? Barely; you've opened up 1 truck worth of transport capacity. Despite having all this potential parallelism and idling trucks at concurrent docks, you will still be stuck with just a single truck moving around making glacial progress at any given moment. At least until enough goods exit this closed system where only the warehouses are storing and the trucks are all transporting again, which requires preserving sufficient headroom at the warehouses to ensure any docked, fully loaded truck can unload immediately. It's a vastly simplified example, but I wouldn't be surprised if something along those lines has occurred where the transport has become storage because there's been too much stuff pumped into the system for the available holding capacity. It's like trying to rearrange your overfull apartment when there's zero floor space available, you can't move the bed because it's wedged between the couch and the table. You need to take stuff out of the space so you can actually move things around.
fnord77 5y ago
Krugman thinks it is a combination of supply chain issues, shift in demand and out of control energy prices: https://archive.md/fjwyl https://archive.md/fjwyl
m0zg 5y ago
I smell BS. I'm buying a lot less stuff now even though I'm financially very comfortable. Not to mention I rarely go out, as well. People who are struggling financially are now buying a lot less in real terms because of inflation and pandemic-related unemployment and under-employment. We're looking at 75 dollar turkeys this Thanksgiving, folks. A lot of people will not be able to afford the whole thing and gasoline at the same time. This to me sounds like DNC talking points aimed at absolving the administration from the clusterfuck it single handedly created. _And_ they're thinking of shutting down _another_ pipeline [1]. Guess what that will do to cost of goods, consumer confidence, and purchase volume, and who will absorb the increased costs? The situation with ports is what happens when you appoint a mayor of a town nobody ever heard of with no experience as a transportation secretary. [1] https://nypost.com/2021/11/08/biden-might-close-michigan-pipeline-white-house-admits/ https://nypost.com/2021/11/08/biden-might-close-michigan-pip...
- mariojv 5y ago
  75 dollar turkeys??? Where in the country are you? Turkey here is retailing for $1.51/lb grocery brand, $1.94/lb here for brand name with curbside pickup. Slightly higher than normal but nowhere near $75 for a turkey.
redis_mlc 5y ago
I've heard it expressed as, "This is not a supply chain, it's a supply line." meaning the US is not receiving components to build with or assemble, but finished goods to consume. It's a sign of weakness.
l33tbro 5y ago
The more I read about this subject, the only thing that becomes reinforced is that nobody really knows what the hell is going on with the markets. The inflation / deflation debate has been raging on for years now, and it's still not clear what we are experiencing in this virualised economy of ours. Gun to head? I think it seems that 'inflation' is not really inflation - but a kind of profit tax that seems to be being priced in to charge more for things because everyone else is doing it. A lot of debt was paid down with the stimulus, rents/real estate are frickin skyrocketing, so it's difficult for me to believe that there is a huge surge of demand because everyone is suddenly flush. As for the the supply chain issues / trade war / materials shortage - again, that doesn't seem to be inflationary or a demand shock, but a temporal supply-side issue not being able to keep up with regular demand as things reboot.
- KETpXDDzR 5y ago
  Yes, the complete system is way too complex to understand. Even the FED admitted that[0]. Especially forecasting anything is very hard and the luck factor is very high. That's why business "science" (not a real science IMO) is only reactive, not proactive. They keep the system running, see it fail, adjust the screws on the machine we call "the market", and try again. [0] https://www.nytimes.com/2021/10/01/upshot/inflation-economy-analysis.html https://www.nytimes.com/2021/10/01/upshot/inflation-economy-...
baryphonic 5y ago
Never have I seen so many words used to describe inflation without using the word inflation. Tight labor market; demand for goods outstripping supply, driving up prices; too much money chasing too few goods: it's all there.
randomsearch 5y ago
Find it bizarre that people need to come up with new explanations (in other comments) for something that is straightforward, well understood, and has been so for a century. Money supply goes up. Provided that gets into consumer’s hands, demand goes up. Depending on the velocity of money, the slack in the economy is quickly eaten up. In a recession there’s more slack. Slack is things like unemployed workers, warehouse stocks, easily accessible resources. Once the slack is gone, this causes prices to rise. None of this requires consumers to change their habits. It’s just a slight marginal increase in spending by _a vast number of people_, which has transitive spending effects. This is Keynesian economics 101. The only thing that is surprising is the speed at which this has happened. The proximate cause is printing money. A more interesting point: during the Obama administration there was a collective feeling that they had not printed enough cash during the 2008 crisis. I think what we’re seeing is an over-correction for that now in the size of stimulus packages. Very much a product of Biden being there in 2008 and now. It’s well intentioned but the mistake is to equate the two events; there was little risk in 2008 of over stimulating the economy, because the recession damped velocity and capital accounts and liquidity requirements ate up the new money supply. World leaders have made a basic error and high inflation is the inevitable consequence. I’m not knowledgable enough to know what the level of inflation we can expect will be, but 5% feels nowhere near the peak. The real danger now is that we get into a wage-price inflationary spiral, which we’re beginning to see signs of. That spiral is incredibly difficult to stop, as the U.K. discovered in the 80s when Thatcher and Lawson threw the kitchen sink at it and it still took years to have any effect.
ny2ko 5y ago
This post really should have defined MP3 earlier! If you are like me and spent way too long scratching your head, googling to no avail until you got to the second half of and it was defined, MP3 stands for Monetary Policy 3
RNCTX 5y ago
Popup modal redirects to the home page. Wtf can these guys possible give advice about when they can't accomplish HTML and javascript?
jstx1 5y ago
I stil don't get it - what is different now compared to 2019 that we have a labour shortage?
- himinlomax 5y ago
  I don't know about you, but I've managed to save 2 to 3 times as much of my income compared to before the pandemic started. I must not be alone. In most countries, those most affected by the shutdowns (restaurants and the likes) got government help. All in all, there's gotta be lot of disposable income, thus people are trying to spend it.
throwaway4good 5y ago
We are doing double or triple ordering of goods not because of end-customer demand but because we fear our suppliers are not able to deliver. Our competitors are doing the same. At aggregate it may look like a “demand shock” due to too loose monetary policies but maybe it is not really what is going on.
- simonh 5y ago
  That supposes that everyone, in all sectors globally has the resources to double or triple order. The money supply to do that has to come from somewhere though. If you are right then this is a temporary shock and will subside quickly. If the article is right then this is a systemic problem that will persist for years to come. I suppose we'll see. One indicator to watch is services demand because I wouldn't have thought that would suffer from a 'grab the toilet paper while you can' effect.
stuaxo 5y ago
"governments transferred a massive amount of money to households". This isn't true in the UK, yet the article mentions a lack of truck drivers here - that's more likely to be due to Brexit and then not wanting to come back after being treated badly last winter.
- ale_jrb 5y ago
  The furlough system transferred a large amount of money to households, because people had substantially reduced expenses (due to not having to commute, and service-based industries being closed, for example) but only slightly reduced income. This is generally true in most countries: although the exact mechanism was different, people ended up with more discretionary income and fewer services to spend it on, and so demanded more goods.
juanani 5y ago
Hol up, so we've been crying supply chain problems for a good few months now, and suddenly the consumers are at fault for overdemand? What did they think was going to happen come Singles day, Black Friday, Christmas? Kinda sounds like they are trying to reduce panic buying so it doesn't over escalate. Thankfully I am ignorant enough to simply enjoy this Phd level of mental gymnastics.
dr_dshiv 5y ago
The call for a massive increase in investment in productivity. What might that look like?
locallost 5y ago
I did not read too deeply into the article, but there are some things that don't add up. 1) if it's only a demand shock and production of goods is sky high, why are all the goods missing? Apple missed its projections and blamed it on supply issues. Did e.g. TSMC crank the production up, but failed to deliver for Apple? Hard to imagine. So if there's enough goods it implies that e.g. Apple didn't sell as much as expected, but this goes against the argument that there is so much stimulus money. 2) speaking of stimulus, despite the claim that it's a demand shock, the article makes this claim early on: The MP3 response we saw in response to the pandemic more than made up for the incomes lost to widespread shutdowns without making up for the supply that those incomes had been producing. so which is it? supply or demand shock?
- Joeri 5y ago
  You can have a record supply and still not have enough supply to meet demand. Apple is selling record numbers of products, they have trouble getting the additional supply to meet the extra demand.
  - locallost 5y ago
    That's fair. Their revenue is up, and the projections might have been just wishful thinking. But I see many examples like these, e.g. BMW ditching touchscreens on their cars because they can't find them etc.
- evrydayhustling 5y ago
  I also had trouble with this, especially as it got to the supply chain, where one company's demand is another's supply. One explanation that fills some gaps for me is that the shift itself reduced efficiencies. They give an example of this at the consumer level, where spending moved from services to goods, putting a new kind of pressure in raw materials and shipping. Another I'm aware of is in energy, where disruptions and shifts in use case for energy are forcing use of less efficient types of energy production. Reduced efficiency doesn't show up cleanly in supply and demand curves because it happens in between the transactions where you measure them. And after thinking once about it, it's impossible to unsee all the ways a sudden shift reduces operating efficiency of almost every kind of economic unit.
dctoedt 5y ago
I won't take the time read, and I certainly won't click on, a long "disclaimer and agreement" before being allowed to read the article - eff that.
cm2187 5y ago
It sorts of make sense. The big mystery was how we created so little inflation with previous QE. In fact we probably did, but because it was injected in the financial system, it created an inflation of financial assets. But the minute the government distributes this newly printed money directly to the general public (through covid subsidies), inflation in ordinary goods follows. I know the Fed pretends it doesn’t finance directly the budget deficit but in practice it does, and the amount of QE pretty much tracks the deficits during covid.
austincheney 5y ago
The LA port issue is mentioned in the article and seems to be severely misunderstood. I work with one of the senior attorneys of the Port of Los Angeles in my side job. The primary problem there, and Long Beach and many other ports, isn't anything economically driven at all. It is lost space. Even more specifically it is vendors not retrieving their containers because its cheaper to leave the container on the dock and store it in their own warehouse. So the moment a graduated price hike was introduced for container parking (just very recently) one of the major US vendors conveniently found warehouse space for 5000 of their containers sitting empty on the LA docks. Think about this like using airport parking for your car as opposed to metered parking on a street in front of your house (everyone's house) and until recently the airport parking was substantially less per day. --- I would have loved for the article to focus more on housing, because I see that topic frequently come up on HN from people on the west specific, especially San Fransisco, and they always get this subject incredibly wrong to fit their localized price/inventory dynamics in way that falsely equates to buying candy bars or fuel. Here is a deeper exploration of housing using data: https://news.ycombinator.com/item?id=28974793 https://news.ycombinator.com/item?id=28974793 In short, supply trails demand. In high growth markets, which is not San Fransisco, the frequency of demand for a fixed asset versus the speed of supply is almost solely responsible for shaping the product definition.
paulmendoza 5y ago
Boomers are retiring and their spending drops off a cliff. That’s why the velocity of money has been dropping.

389 points by knasmai 5y ago

I'm honestly surprised inflation hasn't been worse than what we've already seen. 10-year treasury yields are still well below their 2019 levels and are currently below their levels from Q2 of this year.

anm89 5y ago
It is worse than what we've already seen if what we've already seen is CPI
nwiswell 5y ago
Do treasury yields actually have a causal relationship with anything besides the demand and supply of treasury bonds? I don't see any reason why we can't have a negative real yield (indeed, I suspect that is presently the case).
- P00RL3N0 5y ago
  You may be right on the negative real yield. My thinking was that, ceteris paribus, if expected inflation is rising I would expect interest rates to rise as well. QE has likely been playing a large role in muting this effect.
  - pishpash 5y ago
    The metric you want is the breakeven rate, the difference between nominal Treasury yields and TIPS yields (which are indeed very negative). https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misallocation of capital can't be good. Real yields have been negative out to 30 years for some time now, meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!
    - hogFeast 5y ago
      There is actually a parallel effect of QE that no-one really wrote about: it causes a shortage of risk-free assets, and makes it harder for savers to fund liabilities. I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked"). So we have the amazing situation where you will get funding for a project, but only if you promise to lose money. Investment into real assets is extremely low, chemicals and O&G are trading on mid-single digit P/E ratios, and are furiously trying to return capital...whilst we have massive shortages...it is a very unusual situation. And, imo, the cause of this is the shortage of risk-free assets (because creating this shortage, due partly to regulatory restrictions, did not mean that investors suddenly started making investments into the real economy...most couldn't...they just had to buy more "risk-free" assets from corporates who already had too much money or PE funds that were playing the capital cycle...ofc, no central banker understands that some institutions are limited, the textbook doesn't teach that, they don't understand it).
      - richiebful1 5y ago
        I don't think it's that Jerome Powell doesn't understand. Rather the central bank only has a few tools (interest rates/QE) to nudge the economy in the right direction. It takes real policy (Congress and the White House) to direct the investment to the more sustainable long-term investments
        pishpash 5y ago
        Here is the problem: if Powell is too successful with monetary tools, what incentive does it leave the policy side to do anything at all? He isn't powerless to force policy action by holding the line, but understandably he's more interested in keeping his job.
      - naveen99 5y ago
        > shortage of risk-free assets Risk free assets don’t exist. So by definition, they are always in short (0) supply. Even treasuries are at currency, inflation, and interest rate risk. If you are using risk free as a synonym for us treasuries , that’s what qe has been pumping into the system. Are you saying you want even more qe ?
mattnewton 5y ago
I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price they paid for it 3 years ago.
- hogFeast 5y ago
  There was an article the other week from Canada about their CPI (I can't find it right now). Their CPI calculation was using prices that were half those available in stores (butter was one product, there are large variations in prices for some primary products in Canada because of producer's co-operatives particularly in dairy), and used sizes for some products that haven't existed for decades. CPI calculations are very tricky. Deflation in telecoms, for example, has been very understated because how do you compare a data plan with a voice plan (in the UK, they had to adjust two decades of CPI numbers because of this calculation error). Imo, we place far too much reliance on CPI which is, after all, only one measure of inflation. Everyone seems to believe that prices are rising faster than CPI, and they would probably be right (I am in the UK, food prices in Canada particularly are...out of this world...particularly for meat, which seems to cost at least 3x the price here).
  - clavicat 5y ago
    Is [this](https://www.thestar.com/business/2021/10/23/experts-say-statcan-doesnt-capture-the-high-food-prices-we-see-in-stores-and-it-could-be-because-the-big-grocers-supply-the-data.html https://www.thestar.com/business/2021/10/23/experts-say-stat...) the article?
    - hogFeast 5y ago
      Yes.
      - 5y ago
01100011 5y ago
It feels to me like assets all inflated first, and when that failed to pop it was an omen of the future inflation which would follow. It seems like there is a tsunami of inflation that is just starting to hit the economy, and because of the early asset bubble it is too late to find obvious safe havens to protect inflation vulnerable assets. Your choice at this point, barring some insider information on specific companies, seems to be to have to follow the FOMO wave into an already insanely overvalued market with the hope that you can get out before it all comes crashing down.
ovone 5y ago
Totally agree. We have been living a long period of low inflation with a huge QE at the same time...

lisper 5y ago

It's a plausible theory, but it doesn't explain the long queues of container ships waiting to be unloaded.

waynecochran 5y ago
Certainly shutting down the economy is a factor too.
- vkou 5y ago
  From a cursory glance at I-5 traffic outside my window, besides for ~5 weeks in 2020, it does not seem like the economy was shut down.
  - asdff 5y ago
    Yeah not much of a shutdown, in LA seems like retail and restaurant workers were back working pretty fast, only a handful of places by me failed to pivot into takeout orders and shut down, I'd say 9/10 restaurants anecdotally are still open today which is about what I'd see with typical restaurant turnover over these two years anyhow even in the before times. The city only felt empty for like a month, then it was back to business as usual only with masks on. Traffic picked up again pretty quick. It was only bars and large events that suffered and even then, those have been back for a long time now (at least for bars, restaurant bars with outdoor dining even longer).
formercoder 5y ago
Demand shocks would manifest themselves as bottlenecks in different places along the supply chain as supply attempted to catch up.
- konfin 5y ago
  We're not seeing increased throughput.
- asdff 5y ago
  That's not whats observed at the ports. Relative to before the pandemic in LA, container tonnage is down, container volume is down, cargo value down, the number of vessels serviced is down, as well as revenue all down. By all accounts the port just seems to be working at a reduced capacity than even before the pandemic, rather than moving a larger amount of goods than what was 'normal' and struggling to keep up with increased demand. Seems they just can't keep up the numbers seen under normal demand at least at the port of LA. https://www.portoflosangeles.org/business/statistics/facts-and-figures https://www.portoflosangeles.org/business/statistics/facts-a...

airstrike 5y ago

For anyone else thrown off by the use of "MP3" to refer to anything other than the file format, here's https://medium.com/alpha-beta-blog/the-three-stages-of-monetary-policy-cce4fa116a59 https://medium.com/alpha-beta-blog/the-three-stages-of-monet...

sdenton4 5y ago
it's 2021... People should just switch to Opus. The lower latency should wrap up the supply/demand buffering problems nicely.
asdff 5y ago
Nitpick but nothing grinds my gears more than people using niche acronyms without first defining them in long form, especially when its something like MP3 that's going to give you a million hits of the wrong result when you try and search for a definition.
- ev1 5y ago
  In all fairness, the intended readership of that blog would know it. It's like handing a random technical Go or Rust post to a strictly-business non-technical person.
  - asdff 5y ago
    Even in my highly technical field we still define acronyms when they first appear in a manuscript, since while everyone works in the field maybe not everyone works in this specific niche and is familiar with all the jargon. Editors or reviewers will want to see it defined in long form. It's really just lazy writing to not do it.

monksy 5y ago

Warning: The site withholds the content unless you agree to terms.

throwaway2331 5y ago

For anyone scratching their head on what "MP3" is: monetary policy 3, i.e. "helicopter money," i.e. "the government be handin out them stimmies," i.e. the government injected COVID-19 relief funds into the economy, giving an across-the-board increase in demand for goods & services, but there aren't enough "goods & services" to keep up with this demand.

asdff 5y ago
The government didn't even grant people a months worth of rent in my city. Not sure how that lead to such a huge infusion of demand that continues to persist, unless there are just that many people with very little rent who are driving this demand. Seems like such a small amount in the grand scheme of things considering most people even working a minimum wage job might see more money back on a tax return than the measly $1200 that's been dispersed.
- 300bps 5y ago
  It isn’t just direct stimulus to private citizens. It’s the near zero interest rate policy, the literally illegal purchasing of mortgage and corporate bonds by the fed and so much more that is flushing the entire economy with trillions of dollars.
  - asdff 5y ago
    So what exactly happens in between the fed purchasing mortgage bonds and allegedly consumer driven supply runs on everything from toilet paper to golf clubs?
    - 300bps 5y ago
      Bond rates move inversely to price. As the fed buys bonds, it raises the price which lowers the rate. As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy. Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thin air. The reason why corporations borrow more is because with a lower WACC (weight average cost capital) they can invest in more projects (I.e. spend money) for any initiative that has a positive NPV.

drunkpotato 5y ago

WARNING: This site has an obscenely obnoxious terms & conditions blocking modal. I would prefer this link to be removed, it is so egregious. Post something, or don't. Don't put up a blocking modal to force me to read some terms & conditions before reading the actual content.

dustintrex 5y ago
Nearly all investment management companies do this, I presume because of SEC rules.
madars 5y ago
Crazy how much more pleasant web is with uMatrix. I did not even notice this until you pointed it out
satronaut 5y ago
i really miss the pre 2011 internet sometimes
pembrook 5y ago
Bridgewater would love to show you their content without the modal. The only problem is, the lawyers who interpret things the US government says, are requiring them to show it. Unfortunately, the government has decided you're too stupid to critically read words written by an investment firm. Your elected representatives believe you need to be reminded that investment firms might be writing bullshit to try and take your money. The only problem is, if you're too stupid to use critical thinking when reading words on the internet, you're also not likely to be the type of person who would read a terms & conditions. Welcome to exciting world of well intentioned but poorly thought-out legislation with hilariously irrational unintended consequences.
- RNCTX 5y ago
  Incompetence on the part of a finance company is not the fault of the government. They pay the government to do what the finance company wants. Nice try, no sale.

dustintrex 5y ago

The article doesn't answer the obvious question though: what next? The various pandemic subsidy packages are by and large being wound down, which implies that demand should start dropping quite soon as well.

Maximus9000 5y ago
Also, as the pandemic fades, people will probably start spending more money on services and less money on goods.
anm89 5y ago
Bridge water is very much on the record saying what they think comes next. Inflation, low rates, poor performance for bonds, poor performance for many assets.
- qPM9l3XJrF 5y ago
  Where are they investing then?
  - anm89 5y ago
    If I had to channel Ray Dalio he would say: - Keep your Beta as high as possible, you want to be as diversified as possible heading into a difficult environment - Cash is trash - Value will accrue to real assets and hard money. Real estate, equities with consistent cash flows and strong books, commodities, crypto, land, natural resources. These kinds of things There are plenty of videos of him on youtube going deeper on all of these topics
- clavicat 5y ago
  That was my thesis all summer long, but bond yields have remained stubbornly low and the stock market just had a blowout October even as inflationary pressures picked up amidst the Evergrande crisis and the debt-ceiling crisis. I’ve given up thinking that there is anything that can bring down this market and will no longer fight the trend.

zz865 5y ago

I can remember when a year ago everyone agreed they were happy with consuming less and spending time with the family. Looks like that didn't last long, everyone is out shopping again.

megablast 5y ago
Everyone?? Are you just making stuff up to argue about??
Jensson 5y ago
USA never stopped consuming, they just import more and more. Trade balance is even more negative now than before the great depression, there should be a correction happening real soon: https://tradingeconomics.com/united-states/balance-of-trade https://tradingeconomics.com/united-states/balance-of-trade
- qPM9l3XJrF 5y ago
  What sort of correction?
  - Jensson 5y ago
    On average countries has a trade balance of 0, it means that a country buys as much goods and services as it sells. USA is buying more and more goods and services without selling more, as you can see in that graph, and that has been going on for 50 years now. The correction would be that USA no longer can import goods without paying anything back, stopping all the shipment problems you have now since people no longer want to ship goods to USA. That would be a trillion worth less of raw imports per year according to the current deficit.
- asdff 5y ago
  We can't afford not to import goods. The cost of manufacturing in the U.S. are too high relative to other parts of the world. Can't do anything about that on our end of the deal short of tarriffing ourselves into total economic isolation and being forced to produce everything nationally.

exogeny 5y ago

Addressing a few different comments because it may not be known: Bridgewater is a hedge fund. One of the bigger ones, and most successful. Kind of old school. But because of this, any content that they disseminate must be very clearly be labeled at opinion/research and not investment advice. This is the reason for the obnoxious modal. This one can't be avoided. The email newsletter upsell, however...

hogFeast 5y ago

First really thorough analysis of this situation that I have seen. It is surprising that this observation isn't more common, it is very obvious from looking at sectoral balance sheets...but, I suppose, not many people do this (it is odd to me that what was done during the pandemic had literally never been tried before, there was no economic logic for doing so, and no economist said: hold on, is this a good idea? And still, just a crowd of nodding dogs...you can only rely on an economist for a convincing explanation of what was happened, never the future, never creativity, never analysis). One point that I don't think is made clear. Because this problem is totally artificial, it isn't clear how you solve it. Clearly, prices are going to have to increase substantially to choke off demand. But even once you do that, there is a question in some industries of whether supply can increase at all. Some big industrials are trading on mid-single digit P/E ratios, they just can't get money (most are actually being incentivized to return this, repeat that: shortage of almost everything, the market is telling them...reduce supply urgently). There is a flood of money for "risk-free" investments and tech (read: unprofitable, never going to be profitable but has value because you might be able to convince someone that you will be profitable...eventually), everyone else is being starved to death. It is quite terrifying because the govt has managed to debauch almost every price in the economy. Nothing is working.

ClumsyPilot 5y ago
I think we can finally label neoliberalism a failure, it cant even direct capital to productive industried
- hogFeast 5y ago
  It can. The govt has stopped it doing so.

sicromoft 5y ago

Here's the content without the obnoxious modal: https://archive.md/OTsRH https://archive.md/OTsRH

ArtDev 5y ago

"Household balance sheets are now in a materially better state than they were pre-pandemic". I think this is completely of touch with the realities faced by different slices of society. I am a web developer who was working from home for many years before the pandemic. My experience is not even remotely similar to most people in the US. Edit: this article is written by a hedge fund. So they definitely live in their own little world too.

seemaze 5y ago
"Governments transferred a massive amount of cash to households, more than offsetting lost income from COVID." I don't understand this calculation either. It does not fit my own experience, or anyone else I know.
- adriand 5y ago
  Likewise. I mean I do seem to have more money than before but almost none of it came via government transfers. I think we got $800 for our kids because they were schooled from home for a year or whatever. The rest is just not having things to spend it on, primarily eating out and travel. I certainly agree that huge numbers of people here in Canada benefited from government money to replace lost wages but they were mainly people in service industries who are hardly “wealthy”. So for real, what does this mean? Obviously in aggregate when you write a cheque to every person for $X it adds up, which is what I think happened in the US, but does it create wealthy households?
  - danjayh 5y ago
    Wealthy? No. Flush with rapidly devaluing cash? Yes. A family of 5 with with 2 parents and 3 kids under 6 years old got a total of $19,300 (counting the monthly child credit payments), provided they didn't go over any of the arbitrary income thresholds.

paul7986 5y ago

Seems like all that free money and no one working has definitely caused a supply issue ... yet everyone has tons of money furthering pushing up demand yet supply to meet the demand has shrunk. For those who push for a universal basic income where large groups of people do not work ... do not help produce the supply only push up the demand. Why do you think UBI is still a good idea and you are perfectly fine with how things are now vs. how they were? *Please note i want workers to be paid more then fairly and when i go out i tip up to 30%, as well happily pay $60 to $100 for dinner at Applebees (or similar places) for a friend and or a date and myself.

sdenton4 5y ago
Because the obvious response to insufficient supply is to make more stuff, thereby growing the overall real economy. Yes, it's a lagging function. But it's frankly insane to insist that today's transient supply chain issues mean that people need to be paid less than a living wage in general... It's similar to the old argument over slavery. Yes, removing slavery causes large realignments in the economic system. But overall removing slavery grows the economy, both by encouraging automation of jobs people don't want to do and by increasing the number of people buying stuff and performing more productive labor. Add in additional points about recognizing basic human dignity as needed.
- paul7986 5y ago
  Hmmm but I didn't say anything about wages which I'm very happy to pay more and do now .. tipping more then 20 percent, tipping sub makers at Jersey mikes and happy to pay up to $30 for a burger fries and drink at five guys. Going out to eat with a friend or a date is now a $60 to $100 affair at Applebees or places like it with tip. All good to me!
  - hooande 5y ago
    not necessarily disagreeing with you, but odd that you think your tip at applebee's is an argument against a basic income

iJohnDoe 5y ago

Are there any pre-COVID models predicting this occurrence? Do you think China started predicting an increase in demand before anyone else or do you they were surprised too?

kristjansson 5y ago
The argument is that the monetary policy response to the pandemic caused the demand shock, so seems unlikely that it would have been predicted ex ante.

throw0101a 5y ago

The "shock" is actually a bit more subtle than that: > Here's 10 years of the relationship between our consumption of goods and our consumption of services. It explains a lot about why we're experiencing bottlenecks and disruptions. We were simply not prepared for the massive uptick in goods consumption. * https://twitter.com/TBPInvictus/status/1456683999657615364 https://twitter.com/TBPInvictus/status/1456683999657615364 When people couldn't go out and do stuff (services) they started buying stuff (goods), and the supply chain couldn't handle the sudden surge… so now we have supply problems. The supply problems are often 'subtle' as well. For example, a few months ago softwood lumber in the US hit a peak of $1733/lot, and now it's down to 'only' about $600—which is still 50% higher than it historically ever was before. However there is a 'glut' in the supply chain because current inventories can't be shipped because… there is a shortage of truss plates: * https://en.wikipedia.org/wiki/Truss_connector_plate https://en.wikipedia.org/wiki/Truss_connector_plate Floor trusses can't be built, so even though you've built the first floor walls you can't go to the second because the floor framing—built using trusses—can't be laid down, so houses can't be finished. Further details about the current (Nov 2021) lumber situation on the most recent Odd Lots podcast: * https://player.fm/series/series-1504378/stinson-dean-on-the-lumber-crash-that-followed-the-boom https://player.fm/series/series-1504378/stinson-dean-on-the-... * https://www.bloomberg.com/news/articles/2021-11-08/transcript-stinson-dean-on-the-lumber-crash-that-followed-the-boom?srnd=oddlots https://www.bloomberg.com/news/articles/2021-11-08/transcrip... * https://www.bloomberg.com/news/articles/2021-11-08/how-a-2-metal-plate-defeated-the-laws-of-supply-and-demand?srnd=oddlots https://www.bloomberg.com/news/articles/2021-11-08/how-a-2-m... Similarly even if you built most of the house, you can't legally occupy it unless there's running water—and there's a shortage of faucets: * https://player.fm/series/series-1504378/the-bathtub-episode-how-the-pandemic-disrupted-plumbing https://player.fm/series/series-1504378/the-bathtub-episode-... So the demand and supply shocks dovetail 'nicely'. Worth checking out Bloomberg's Odd Lots podcast as they've done a number of episodes on the supply chain over the last year. There are ones specifically focusing on (US) ports, rail roads, and trucking.

skybrian 5y ago

It seems like there isn’t enough data backing up these claims, or at least not in convenient form. Where are the graphs of things like container throughput at major ports? Compare with the pandemic where it’s much easier to understand whether things are getting better or worse. Also, economic growth depends on the ability to remove bottlenecks and improve productivity. Yes, there is always another bottleneck. But idea that removing one bottleneck is pointless because there will be another one seems like giving up on growth? In particular, it seems unlikely that there is no way to build more housing.

surrealize 5y ago

Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good. If wage growth squeezes profits, then that's also good from a wealth inequality point of view.

mrjangles 5y ago
Yes I was wondering why economists would think this was a bad thing. To someone like me who knows nothing, this seems like an obvious good thing.
- ODILON_SATER 5y ago
  There is no increase in productivity. Inflation can be very costly, especially for the most disadvantaged who do not have investments to hedge against the rise in prices. It may have a positive first order effect in the short run, but it is an elusive one. Inflation, if out of control, has the potential to bring the interest rate to levels that would turn borrowing extremely costly --therefore making acquisition of capital more expensive, affecting productivity. Another side effect is that the government debt could become extremely burdensome, which would force the government to essentially print money to pay its debts. That is effectively a tax (called _seignorage_) on the population. In order to pay its debts, the government prints money, which in turn makes goods and services more expensive --i.e. _seignorage_. High inflation can affect consumer behavior and depress economic activity, which would lead to unemployment, it happened many times, and it is called stagflation. A slower economic activity coupled with increase in prices could then make production more costly, which would push inflation even higher but also increase unemployment. The key here is whether inflation would get out of control. The Fed seems to banking on the idea that this high inflation is transitory, which means that despite its current high levels, there will be some accommodation in the medium run and things would go back to a stable and acceptable target level. Some, like the article above, does not think so. If that's the case, then the Fed will need to act soon.
5y ago

EdwardDiego 5y ago

> Further, those who left the labor force during COVID don’t seem particularly likely to come back, as most say they don’t want a job, and many are over 65 and are likely permanently retired Who was asked, and who did the asking to arrive at "most say"?

a_bonobo 5y ago
Exactly! The data makes the opposite point. https://hbr.org/2021/09/who-is-driving-the-great-resignation https://hbr.org/2021/09/who-is-driving-the-great-resignation >Employees between 30 and 45 years old have had the greatest increase in resignation rates, with an average increase of more than 20% between 2020 and 2021. >Interestingly, resignation rates also fell for those in the 60 to 70 age group
- hammock 5y ago
  That's not the opposite.
  - throwawaygh 5y ago
    GP quote suggests on-time retirement (65+) while OP suggests not just not-retirement-age but actually prime-earning-age. Those seem pretty opposite to me? Anyways, raising a kid with two earners is too damn hard. That's what's really going on.
    - EdwardDiego 5y ago
      Yep, it's a bit crazy how most Western school systems I'm aware of are still designed like it's the 80s and every household has a parent at home full-time. E.g., school finishes early afternoon, large amounts of school holidays that dramatically exceed the annual leave entitlements of two parents combined, etc.
    - makomk 5y ago
      They're talking about two different things - one is about people leaving the labor force entirely, whilst the other is about people quitting their current jobs. Now, there might be some overlap but there doesn't necessarily have to be all that much because a bunch of people were made redundant earlier in the pandemic and some of them aren't going to return to working again.

guscost 5y ago

It’s a “people don’t like paranoid hypochondriac fascism” shock, and you know it.

anm89 5y ago

Who are these amateurs? They clearly have never actually had to trade markets. We haven't had inflation for 50 years! So how could we possibly have it now?

arthur5005 5y ago

What this doesn’t really address is the why? Yeah there’s more money floating around, so perhaps more people want to spend it, but why? Most people aren’t getting materially more stuff or even need that much more stuff, consumption’s already god damn conspicuous. Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion. To me, this still looks like the bullwhip effect, which is expected to have an outsized effect on demand over at least a year or two. Buyers, who got used to “just in time” shipping, got spooked by shipping delays and shortages from their suppliers, because of supply demand imbalances during shutdowns, and as a response they all put in orders for 2 to 3 times the amount they usually buy from their suppliers with the intent of rebuilding domestic stock so they don’t miss out on sales. All of a sudden, aggregate demand explodes. Shocking.

tsywke44 5y ago
Remote work. Hundreds of millions of well-off middle class people gained 2 hours of extra time and energy per day from not having to commute. Thats equivalent to a population boom.
- prawn 5y ago
  And that puts more people at home looking at their surroundings thinking about how it might make sense to upgrade. "Well, I'll be looking at this place another 7+ hours a day." Which then puts demand on various hardware supplies and tradespeople. In our case, with the real estate market so hot, it makes sense to upgrade. Selling and buying a house has a stamp duty here of $50k on a $1m house, meaning it's fairly easy to justify $50k on internal renovations (updating bathrooms, flooring, etc) rather than upping and moving.
Spooky23 5y ago
It’s a whiptail effect. Shifts in demand and supply cascade and create unpredictable effects. For example, the rush on toilet paper triggered more production, which reduced pulp supplies, which constrained golf cart supply. Why? Seats are made from particleboard, made from pulp. Plus, golf courses bought more carts than usual due to lockdown restrictions.

mhalle 5y ago

It would be great if we could somehow turn the growth in discretionary income made possible by these economic policies into greater giving to public serving institutions (libraries, parks, etc) and other charitable contributions. COVID's impacts have not been proportional across the socio-economic spectrum, nor has the benefit of the economic stimulus.

danjayh 5y ago
Very true. A family of 5 with 3 toddlers making $50k/yr got $19,300 in stimulus and expanded child tax credit, whereas that same family would have gotten considerably less if they had a $200k/yr income. It would seem that the benefit of the economic stimulus was rather intentionally concentrated at the bottom and middle of the income curve, obviating the need for private charitable contributions. Let's also not forget that those in the top 20% already pay nearly 80% of the taxes, kinda seems like they're already doing more than their share.
- mhalle 5y ago
  A family of 5 making $50k per year is one lost job away from poverty in much of the US, which was much more likely during the pandemic without assistance. They remain economically vulnerable, probably chronically. A family of the same side making $200k per year is not on the border of poverty anywhere in the US. Meanwhile, the public facilities used by both families such as parks were underfunded with the loss of tax revenue during the pandemic (and often before). Charitable giving is an opportunity to improve them without raising taxes. Without those inclusive civic institutions, those with means can go to private or for profit recreation and cultural options. Those who don't have nothing. It is disheartening to hear that emergency public assistance would be used as a rationale to "obviate the need charitable contributions".

noduerme 5y ago

So here's a thing. Covid can cause neurological damage to the brain's frontal lobe, beyond that implicated by the loss of taste and smell. Damage to the frontal lobe causes what Neal Stephenson referred to as "poor impulse control". I think the rise in violent incidents on airplanes is linked to this. Additionally, poor impulse control leads to impulsive spending and purchasing behavior. Compounded by lockdowns and government checks, the situation is that consumers have upped their consumption way beyond their means; but some of this I suspect is neurological as opposed to psychological. I think wild consumer demand just happens to be right now the most visible part of an iceberg of long lasting brain damage caused by covid, that our society is about to crash into.

jolux 5y ago

Just a warning that this is an article by a hedge fund expressing a view of our current inflationary period that I would argue is heterodox among the economic mainstream. I suggest reading Paul Krugman and Claudia Sahm for dovish views, or Adam Ozimek for a more critical view. In particular, the idea that “inflation expectations” can perpetuate inflation via a self-fulfilling prophecy effect has been called into question lately: https://www.federalreserve.gov/econres/feds/files/2021062pap.pdf https://www.federalreserve.gov/econres/feds/files/2021062pap...

xyzzyz 5y ago
What is most definitely a heterodox economic view is taking Paul Krugman seriously. He has fully become a newspaper opinion pundit, and very few people among academic economists pay much attention to him because of that.
- deleted 5y ago
  [deleted]
- TheCowboy 5y ago
  This simply isn't true when it comes to the topic of economics, and there are heterodox-y economists (Tyler Cowen for example) who also respect Krugman as an economist even if they don't agree with him on everything. As for paying much attention to him in academia, afaik he's not really active in the publish or perish academic game anymore so I don't get this as a criticism, but his influences are still there.
ODILON_SATER 5y ago
Claudia Sahm? Krugman? I rather listen to the hedge fund guys, at least they have skin in the game, don't they? Claudia Sahm is extremely partisan, and so is Krugman. You know it's going to be bad when we are starting to hear from the media that inflation is actually a good thing --because people have more disposable income to spend on things. First, it was just a blip, then they told us it would go away in half a year, now it is here to stay --but it is a good thing, see? The reality is that the explosive demand, alongside with a lagging supply can lead to an inflationary pressure not seen since the 1970s. At least in the 70s the information technology revolution was just around the corner. Right now, it feels like the supply issue cannot be remedied or solved because of heavy regulations and a stagnant productivity.

josh_today 5y ago

This is 100% a supply shock. I have colleagues in the import business and containers are impossible to get and when they do you’re looking at 2x pre covid prices.

WhisperingShiba 5y ago

This just in, investment firm thinks there should be more investment into the economy. More on this story and other, at 6PM pacific time.

pengaru 5y ago

Isn't a big part of the current problem that transport/delivery/shipping vessels and/or their portable containers have been forced to become part of the storage capacity? Does it really require much more than that to break the whole system down? You could have what was once a highly parallel system with tons of transport bandwidth brought to its knees and effectively serialized if not completely deadlocked by just overflowing your storage capacity enough to fill all the transport stuck in queues and other forms of holding patterns. Thought exercise: You have two warehouses surrounded with tons of loading/unloading docks, plenty of bandwidth capacity, but they're both full inside. You have 20 trucks available, and they too are all full of goods, 10 parked at the docks of one warehouse, the other 10 parked at the other warehouse. But nothing is happening, because all the trucks are full and waiting to unload, and all the warehouses are full. So you introduce a 21st truck that's empty, and it shows up at one warehouse, loads up, and moves the stuff to the other where it needs to go. What happens? Did you fix the problem? Barely; you've opened up 1 truck worth of transport capacity. Despite having all this potential parallelism and idling trucks at concurrent docks, you will still be stuck with just a single truck moving around making glacial progress at any given moment. At least until enough goods exit this closed system where only the warehouses are storing and the trucks are all transporting again, which requires preserving sufficient headroom at the warehouses to ensure any docked, fully loaded truck can unload immediately. It's a vastly simplified example, but I wouldn't be surprised if something along those lines has occurred where the transport has become storage because there's been too much stuff pumped into the system for the available holding capacity. It's like trying to rearrange your overfull apartment when there's zero floor space available, you can't move the bed because it's wedged between the couch and the table. You need to take stuff out of the space so you can actually move things around.

fnord77 5y ago

Krugman thinks it is a combination of supply chain issues, shift in demand and out of control energy prices: https://archive.md/fjwyl https://archive.md/fjwyl

m0zg 5y ago

I smell BS. I'm buying a lot less stuff now even though I'm financially very comfortable. Not to mention I rarely go out, as well. People who are struggling financially are now buying a lot less in real terms because of inflation and pandemic-related unemployment and under-employment. We're looking at 75 dollar turkeys this Thanksgiving, folks. A lot of people will not be able to afford the whole thing and gasoline at the same time. This to me sounds like DNC talking points aimed at absolving the administration from the clusterfuck it single handedly created. _And_ they're thinking of shutting down _another_ pipeline [1]. Guess what that will do to cost of goods, consumer confidence, and purchase volume, and who will absorb the increased costs? The situation with ports is what happens when you appoint a mayor of a town nobody ever heard of with no experience as a transportation secretary. [1] https://nypost.com/2021/11/08/biden-might-close-michigan-pipeline-white-house-admits/ https://nypost.com/2021/11/08/biden-might-close-michigan-pip...

mariojv 5y ago
75 dollar turkeys??? Where in the country are you? Turkey here is retailing for $1.51/lb grocery brand, $1.94/lb here for brand name with curbside pickup. Slightly higher than normal but nowhere near $75 for a turkey.

redis_mlc 5y ago

I've heard it expressed as, "This is not a supply chain, it's a supply line." meaning the US is not receiving components to build with or assemble, but finished goods to consume. It's a sign of weakness.

l33tbro 5y ago

The more I read about this subject, the only thing that becomes reinforced is that nobody really knows what the hell is going on with the markets. The inflation / deflation debate has been raging on for years now, and it's still not clear what we are experiencing in this virualised economy of ours. Gun to head? I think it seems that 'inflation' is not really inflation - but a kind of profit tax that seems to be being priced in to charge more for things because everyone else is doing it. A lot of debt was paid down with the stimulus, rents/real estate are frickin skyrocketing, so it's difficult for me to believe that there is a huge surge of demand because everyone is suddenly flush. As for the the supply chain issues / trade war / materials shortage - again, that doesn't seem to be inflationary or a demand shock, but a temporal supply-side issue not being able to keep up with regular demand as things reboot.

KETpXDDzR 5y ago
Yes, the complete system is way too complex to understand. Even the FED admitted that[0]. Especially forecasting anything is very hard and the luck factor is very high. That's why business "science" (not a real science IMO) is only reactive, not proactive. They keep the system running, see it fail, adjust the screws on the machine we call "the market", and try again. [0] https://www.nytimes.com/2021/10/01/upshot/inflation-economy-analysis.html https://www.nytimes.com/2021/10/01/upshot/inflation-economy-...

baryphonic 5y ago

Never have I seen so many words used to describe inflation without using the word inflation. Tight labor market; demand for goods outstripping supply, driving up prices; too much money chasing too few goods: it's all there.

randomsearch 5y ago

Find it bizarre that people need to come up with new explanations (in other comments) for something that is straightforward, well understood, and has been so for a century. Money supply goes up. Provided that gets into consumer’s hands, demand goes up. Depending on the velocity of money, the slack in the economy is quickly eaten up. In a recession there’s more slack. Slack is things like unemployed workers, warehouse stocks, easily accessible resources. Once the slack is gone, this causes prices to rise. None of this requires consumers to change their habits. It’s just a slight marginal increase in spending by _a vast number of people_, which has transitive spending effects. This is Keynesian economics 101. The only thing that is surprising is the speed at which this has happened. The proximate cause is printing money. A more interesting point: during the Obama administration there was a collective feeling that they had not printed enough cash during the 2008 crisis. I think what we’re seeing is an over-correction for that now in the size of stimulus packages. Very much a product of Biden being there in 2008 and now. It’s well intentioned but the mistake is to equate the two events; there was little risk in 2008 of over stimulating the economy, because the recession damped velocity and capital accounts and liquidity requirements ate up the new money supply. World leaders have made a basic error and high inflation is the inevitable consequence. I’m not knowledgable enough to know what the level of inflation we can expect will be, but 5% feels nowhere near the peak. The real danger now is that we get into a wage-price inflationary spiral, which we’re beginning to see signs of. That spiral is incredibly difficult to stop, as the U.K. discovered in the 80s when Thatcher and Lawson threw the kitchen sink at it and it still took years to have any effect.

ny2ko 5y ago

This post really should have defined MP3 earlier! If you are like me and spent way too long scratching your head, googling to no avail until you got to the second half of and it was defined, MP3 stands for Monetary Policy 3

RNCTX 5y ago

Popup modal redirects to the home page. Wtf can these guys possible give advice about when they can't accomplish HTML and javascript?

jstx1 5y ago

I stil don't get it - what is different now compared to 2019 that we have a labour shortage?

himinlomax 5y ago
I don't know about you, but I've managed to save 2 to 3 times as much of my income compared to before the pandemic started. I must not be alone. In most countries, those most affected by the shutdowns (restaurants and the likes) got government help. All in all, there's gotta be lot of disposable income, thus people are trying to spend it.

throwaway4good 5y ago

We are doing double or triple ordering of goods not because of end-customer demand but because we fear our suppliers are not able to deliver. Our competitors are doing the same. At aggregate it may look like a “demand shock” due to too loose monetary policies but maybe it is not really what is going on.

simonh 5y ago
That supposes that everyone, in all sectors globally has the resources to double or triple order. The money supply to do that has to come from somewhere though. If you are right then this is a temporary shock and will subside quickly. If the article is right then this is a systemic problem that will persist for years to come. I suppose we'll see. One indicator to watch is services demand because I wouldn't have thought that would suffer from a 'grab the toilet paper while you can' effect.

stuaxo 5y ago

"governments transferred a massive amount of money to households". This isn't true in the UK, yet the article mentions a lack of truck drivers here - that's more likely to be due to Brexit and then not wanting to come back after being treated badly last winter.

ale_jrb 5y ago
The furlough system transferred a large amount of money to households, because people had substantially reduced expenses (due to not having to commute, and service-based industries being closed, for example) but only slightly reduced income. This is generally true in most countries: although the exact mechanism was different, people ended up with more discretionary income and fewer services to spend it on, and so demanded more goods.

juanani 5y ago

Hol up, so we've been crying supply chain problems for a good few months now, and suddenly the consumers are at fault for overdemand? What did they think was going to happen come Singles day, Black Friday, Christmas? Kinda sounds like they are trying to reduce panic buying so it doesn't over escalate. Thankfully I am ignorant enough to simply enjoy this Phd level of mental gymnastics.

dr_dshiv 5y ago

The call for a massive increase in investment in productivity. What might that look like?

locallost 5y ago

I did not read too deeply into the article, but there are some things that don't add up. 1) if it's only a demand shock and production of goods is sky high, why are all the goods missing? Apple missed its projections and blamed it on supply issues. Did e.g. TSMC crank the production up, but failed to deliver for Apple? Hard to imagine. So if there's enough goods it implies that e.g. Apple didn't sell as much as expected, but this goes against the argument that there is so much stimulus money. 2) speaking of stimulus, despite the claim that it's a demand shock, the article makes this claim early on: The MP3 response we saw in response to the pandemic more than made up for the incomes lost to widespread shutdowns without making up for the supply that those incomes had been producing. so which is it? supply or demand shock?

Joeri 5y ago
You can have a record supply and still not have enough supply to meet demand. Apple is selling record numbers of products, they have trouble getting the additional supply to meet the extra demand.
- locallost 5y ago
  That's fair. Their revenue is up, and the projections might have been just wishful thinking. But I see many examples like these, e.g. BMW ditching touchscreens on their cars because they can't find them etc.
evrydayhustling 5y ago
I also had trouble with this, especially as it got to the supply chain, where one company's demand is another's supply. One explanation that fills some gaps for me is that the shift itself reduced efficiencies. They give an example of this at the consumer level, where spending moved from services to goods, putting a new kind of pressure in raw materials and shipping. Another I'm aware of is in energy, where disruptions and shifts in use case for energy are forcing use of less efficient types of energy production. Reduced efficiency doesn't show up cleanly in supply and demand curves because it happens in between the transactions where you measure them. And after thinking once about it, it's impossible to unsee all the ways a sudden shift reduces operating efficiency of almost every kind of economic unit.

dctoedt 5y ago

I won't take the time read, and I certainly won't click on, a long "disclaimer and agreement" before being allowed to read the article - eff that.

cm2187 5y ago

It sorts of make sense. The big mystery was how we created so little inflation with previous QE. In fact we probably did, but because it was injected in the financial system, it created an inflation of financial assets. But the minute the government distributes this newly printed money directly to the general public (through covid subsidies), inflation in ordinary goods follows. I know the Fed pretends it doesn’t finance directly the budget deficit but in practice it does, and the amount of QE pretty much tracks the deficits during covid.

austincheney 5y ago

The LA port issue is mentioned in the article and seems to be severely misunderstood. I work with one of the senior attorneys of the Port of Los Angeles in my side job. The primary problem there, and Long Beach and many other ports, isn't anything economically driven at all. It is lost space. Even more specifically it is vendors not retrieving their containers because its cheaper to leave the container on the dock and store it in their own warehouse. So the moment a graduated price hike was introduced for container parking (just very recently) one of the major US vendors conveniently found warehouse space for 5000 of their containers sitting empty on the LA docks. Think about this like using airport parking for your car as opposed to metered parking on a street in front of your house (everyone's house) and until recently the airport parking was substantially less per day. --- I would have loved for the article to focus more on housing, because I see that topic frequently come up on HN from people on the west specific, especially San Fransisco, and they always get this subject incredibly wrong to fit their localized price/inventory dynamics in way that falsely equates to buying candy bars or fuel. Here is a deeper exploration of housing using data: https://news.ycombinator.com/item?id=28974793 https://news.ycombinator.com/item?id=28974793 In short, supply trails demand. In high growth markets, which is not San Fransisco, the frequency of demand for a fixed asset versus the speed of supply is almost solely responsible for shaping the product definition.

paulmendoza 5y ago

Boomers are retiring and their spending drops off a cliff. That’s why the velocity of money has been dropping.