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That's why it is extremely frustrating to watch this unfold. The easiest way to kill inflation is to kill growth. But that won't help people in need anyway. An

by liuliu 4y ago

That's why it is extremely frustrating to watch this unfold. The easiest way to kill inflation is to kill growth. But that won't help people in need anyway. An empty shelf of baby formulas are not a sign of "economy is too hot". It is a sign of supply issue.

ordu 4y ago
> An empty shelf of baby formulas Can I ask you why you've chosen this particular example? It is not about I agree with you, or I'm going to contradict in a some way, it is completely unrelated question. A complete off-topic.
- liuliu 4y ago
  The cause of this round is not some sudden bubble burst. Fed raise rates because they want to signal that they are serious about taming the inflation. That caused sharp sentiment change in capital market. The cause of this round of inflation can be many things, we've been in low-interest environment for 10+ years with occasional QEs. It hasn't inflated the economy as much as we hoped for that 10+ years. It is lazy thinking to attribute back to QE for this round of inflation.
- shortstuffsushi 4y ago
  I believe the example was likely chosen due to the recent controversial bill in congress [0]. However, I think the choice of baby formula shows that some "core" needs in the economy are missing as well, and that the tech bubble struggling. 0: https://www.bloomberg.com/news/articles/2022-05-19/house-passes-fda-baby-formula-bill-but-senate-fate-is-uncertain https://www.bloomberg.com/news/articles/2022-05-19/house-pas... (Picked at random from a search for "baby formula bill")
  - lotsofpulp 4y ago
    The baby formula shortage is specifically related to one company’s production being shut down, supposedly due to their negligence in maintaining quality in conjunction with policies specific to baby formula that prevent supplies from abroad to come in to fill the void. It seems like a very poor example to refer to when talking about the broad economy’s needs and completely unrelated to a tech bubble.
    - shortstuffsushi 4y ago
      Sorry, I guess I should have expounded a bit more - I think the example was chosen because of both cultural relevance [0] and because it is something that is a "core" element - I didn't necessarily mean to comment on whether it was an accurate representation of the state of things. I would tend to agree that one "industry's" quality and policy related failings are not a sign of wider economic failure, although I think another commenter had it right with "covid hangover." There's a lingering supply/demand mismatch in seemingly all consumer markets that seems in large part due to problems that were started or brought to a head during covid.
bushbaba 4y ago
Worse yet, everyone over-ordered due to the supply chain issues to reduce future disruptions. We're going to end up in a recession with huge surplus of inventory.
- matwood 4y ago
  This is what I've been predicting. Right around when the fed crushes demand, the supply chain will finally get fixed, flooding the market with supply that no one now wants.
toomuchtodo 4y ago
That growth would’ve just gone predominately to the wealthy/shareholder class anyway. Better to destroy asset values and growth to destroy demand, which reduces inflation. Baby formula is a poor example; that was Abbott having regulatory capture and a de facto monopoly [1]. [1] https://mattstoller.substack.com/p/big-bottle-the-baby-formula-nightmare https://mattstoller.substack.com/p/big-bottle-the-baby-formu...
rufus_foreman 4y ago
>> An empty shelf of baby formulas are not a sign of "economy is too hot" The highest rate of inflation since 1981 is a sign of "economy is too hot". The Fed has two jobs: keep both unemployment and inflation low. Unemployment is near 40 year lows, inflation is near 40 year highs. You know what is going to happen, and the Fed has said what is going to happen, if you understand Fedspeak. They're going to raise rates, they're going to keep raising rates, they're not going to stop just because inflation slows a little, and there's a good possibility it will cause a recession.
- closedloop129 4y ago
  Is the Fed able to stop money supply at all? With crypto coins, the market can create its own liquidity if the Fed rises interest rates.
- zarzavat 4y ago
  There’s two kinds of inflation. Demand-driven inflation caused by people having too much purchasing power. And supply-driven inflation because of shortages or supply chain. Changing interest rates does not fix supply chain problems. It actually makes them worse because it removes the financial headroom that companies involved in those supply chains have to invest in improvements. For example, there is a shortage of computer chips. Say that you are Intel or Texas Instruments. You want to invest in producing more chips. Does increasing interest rates and probable recession make the magnitude of that investment go up or down? The Fed is like a surgeon that has amputated the wrong leg. Not only is the patient missing a perfectly good leg, but the other leg still has gangrene.
  - lumost 4y ago
    On the other hand, if everyone runs out and tries to build giant fabs - then the price of the goods and services required to make giant fabs will rise. If the interest rates are higher, then there will be fewer fab orders - but the price per fab will be lower.
puranjay 4y ago
They need to kill this “growth” because they’ve essentially priced out half the population out of ever owning a home +20% increase in home prices is not “growth”. Its sheer injustice
hopefullywrong 4y ago
If it's a demand issue maybe companies fall in line and all have their layoffs at the same time, reduce worker purchasing power, and then there's fewer shortages of things. problem solved. </armchair supply chain economist>

by liuliu 4y ago

ordu 4y ago

> An empty shelf of baby formulas Can I ask you why you've chosen this particular example? It is not about I agree with you, or I'm going to contradict in a some way, it is completely unrelated question. A complete off-topic.

liuliu 4y ago
The cause of this round is not some sudden bubble burst. Fed raise rates because they want to signal that they are serious about taming the inflation. That caused sharp sentiment change in capital market. The cause of this round of inflation can be many things, we've been in low-interest environment for 10+ years with occasional QEs. It hasn't inflated the economy as much as we hoped for that 10+ years. It is lazy thinking to attribute back to QE for this round of inflation.
shortstuffsushi 4y ago
I believe the example was likely chosen due to the recent controversial bill in congress [0]. However, I think the choice of baby formula shows that some "core" needs in the economy are missing as well, and that the tech bubble struggling. 0: https://www.bloomberg.com/news/articles/2022-05-19/house-passes-fda-baby-formula-bill-but-senate-fate-is-uncertain https://www.bloomberg.com/news/articles/2022-05-19/house-pas... (Picked at random from a search for "baby formula bill")
- lotsofpulp 4y ago
  The baby formula shortage is specifically related to one company’s production being shut down, supposedly due to their negligence in maintaining quality in conjunction with policies specific to baby formula that prevent supplies from abroad to come in to fill the void. It seems like a very poor example to refer to when talking about the broad economy’s needs and completely unrelated to a tech bubble.
  - shortstuffsushi 4y ago
    Sorry, I guess I should have expounded a bit more - I think the example was chosen because of both cultural relevance [0] and because it is something that is a "core" element - I didn't necessarily mean to comment on whether it was an accurate representation of the state of things. I would tend to agree that one "industry's" quality and policy related failings are not a sign of wider economic failure, although I think another commenter had it right with "covid hangover." There's a lingering supply/demand mismatch in seemingly all consumer markets that seems in large part due to problems that were started or brought to a head during covid.

bushbaba 4y ago

Worse yet, everyone over-ordered due to the supply chain issues to reduce future disruptions. We're going to end up in a recession with huge surplus of inventory.

matwood 4y ago
This is what I've been predicting. Right around when the fed crushes demand, the supply chain will finally get fixed, flooding the market with supply that no one now wants.

toomuchtodo 4y ago

That growth would’ve just gone predominately to the wealthy/shareholder class anyway. Better to destroy asset values and growth to destroy demand, which reduces inflation. Baby formula is a poor example; that was Abbott having regulatory capture and a de facto monopoly [1]. [1] https://mattstoller.substack.com/p/big-bottle-the-baby-formula-nightmare https://mattstoller.substack.com/p/big-bottle-the-baby-formu...

rufus_foreman 4y ago

>> An empty shelf of baby formulas are not a sign of "economy is too hot" The highest rate of inflation since 1981 is a sign of "economy is too hot". The Fed has two jobs: keep both unemployment and inflation low. Unemployment is near 40 year lows, inflation is near 40 year highs. You know what is going to happen, and the Fed has said what is going to happen, if you understand Fedspeak. They're going to raise rates, they're going to keep raising rates, they're not going to stop just because inflation slows a little, and there's a good possibility it will cause a recession.

closedloop129 4y ago
Is the Fed able to stop money supply at all? With crypto coins, the market can create its own liquidity if the Fed rises interest rates.
zarzavat 4y ago
There’s two kinds of inflation. Demand-driven inflation caused by people having too much purchasing power. And supply-driven inflation because of shortages or supply chain. Changing interest rates does not fix supply chain problems. It actually makes them worse because it removes the financial headroom that companies involved in those supply chains have to invest in improvements. For example, there is a shortage of computer chips. Say that you are Intel or Texas Instruments. You want to invest in producing more chips. Does increasing interest rates and probable recession make the magnitude of that investment go up or down? The Fed is like a surgeon that has amputated the wrong leg. Not only is the patient missing a perfectly good leg, but the other leg still has gangrene.
- lumost 4y ago
  On the other hand, if everyone runs out and tries to build giant fabs - then the price of the goods and services required to make giant fabs will rise. If the interest rates are higher, then there will be fewer fab orders - but the price per fab will be lower.

puranjay 4y ago

They need to kill this “growth” because they’ve essentially priced out half the population out of ever owning a home +20% increase in home prices is not “growth”. Its sheer injustice

hopefullywrong 4y ago

If it's a demand issue maybe companies fall in line and all have their layoffs at the same time, reduce worker purchasing power, and then there's fewer shortages of things. problem solved. </armchair supply chain economist>