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The real problem with this recession is that businesses are being asked to reduce prices by increasing supply - but paradoxically, the cost of increasing supply

The real problem with this recession is that businesses are being asked to reduce prices by increasing supply - but paradoxically, the cost of increasing supply is higher because of interest rates. Just reducing demand with a recession doesn't reduce the price of goods automatically. For CPI to go down, someone on the supply side has to accept lower prices. Who is going to accept it? Only the most desperate of producers, and only if the owners of businesses want to continue that business. Paradoxically, if owners don't want a low margin business, they'll just shut them down causing even more shortage. One solution appears to be a deep recession that wipes everyone out and then another low interest rate cycle to start the business cycle again. But this will be very very painful and unpopular. Another solution appears to be for governments to incentivize increase in production. But this can't be a monetary incentive since that will cause even more inflation. A third solution is to export inflation to developing countries. Just import a lot more from other countries at lower prices so that CPI remains low. But without Chinese manufacturing, where is this going to go?

A4ET8a8uTh0 4y ago
The more amusing, although not completely unpredictable result of this based purely on human nature, is that all this excitement will likely increase demand in short term as people panic stock up on items before inflation increases prices out of their reach. You can apparently still see it in cars ( SUVs anecdotally for whatever reason ). We are in for a wild ride. One issue with economics is that it is based on a flawed model ( rationality is assumed ) and humans are way more emotional than the model allows for. I would like to hope that some marketing company has a real and closer model for predictions, but that is likely a closely guarded corporate secret.
matwood 4y ago
> The real problem with this recession is that businesses are being asked to reduce prices by increasing supply - but paradoxically, the cost of increasing supply is higher because of interest rates. You've nailed why the fed is in a pickle. Their only tool is a hammer, when they need a screwdriver. People moaning about energy companies not investing in more supply are missing that the fed is on the other side telling those same companies they are going to reduce demand and drive prices down. It doesn't make sense to invest in more supply when the fed is actively working against you.

A4ET8a8uTh0 4y ago

The more amusing, although not completely unpredictable result of this based purely on human nature, is that all this excitement will likely increase demand in short term as people panic stock up on items before inflation increases prices out of their reach. You can apparently still see it in cars ( SUVs anecdotally for whatever reason ). We are in for a wild ride. One issue with economics is that it is based on a flawed model ( rationality is assumed ) and humans are way more emotional than the model allows for. I would like to hope that some marketing company has a real and closer model for predictions, but that is likely a closely guarded corporate secret.

matwood 4y ago

> The real problem with this recession is that businesses are being asked to reduce prices by increasing supply - but paradoxically, the cost of increasing supply is higher because of interest rates. You've nailed why the fed is in a pickle. Their only tool is a hammer, when they need a screwdriver. People moaning about energy companies not investing in more supply are missing that the fed is on the other side telling those same companies they are going to reduce demand and drive prices down. It doesn't make sense to invest in more supply when the fed is actively working against you.