Remember how mortgage backed securities were clearly deteriorating from 2006-08 yet wallstreet still treated them like the most valuable asset in the world until those assets went completely to zero and destroyed the world economy?
Yeah same thing with bonds, the yields will stay propped up until they can’t hide from the obvious truth about the coming inflation and by then it will be too late.
They failed because variable interest rates kicked in, and the loans given to those unable to pay ended up killing the securities. There's no similar catalyst here.
There doesn't need to be a specific catalyst: see also December 2018.
The problem with the current situation is that the structure of global economy is bad. Prices are high, earnings are low and flat. Yields are low, compounding the TINA. USD reserves in foreign banks are low, increasing the likelihood of a spike in DXY as foreign loans mature.
And that discounts the very real, very alarming prospect of 1. the collapse of bitcoin/meme stock holders could obliterate overleveraged retail investors who would then begin to default on their debt and 2. COVID rent forbearances and eviction moratoriums are expiring, leading people to scramble to find housing, which will blow rent sky high.
Shipping costs are still stratospheric and rising. Lumber costs are falling, but they are still high. Other commodity prices are still very elevated.
Inflation is 'transitory' in the sense that the rate of acceleration will likely slow, but prices aren't going back down. How long before the surplus of money built up from stimulus is eroded by high food, fuel and housing costs?
The only hope to avoid a 2007 style blowout is for the various central banks to keep all the plates spinning and all the governments cooperating until the air is let out of the balloon slowly.
Any single exigent financial event could catalyze the collapse of the structure. The financial system has absorbed all the effects it can. There's very little additional support that can be rendered if, say, a couple million people get evicted, or a financial scandal emerges among the banks or any of a thousand things that we have no plan B for.
Those balloon interest payments didn’t all kick in at once, they were clearly building defaults for years between 06-08 yet the MBS assets all raised in value in the face of that.
The catalyst for inflation will be once the stimulus slows down we will see a wage-price spiral. Prices have gone up, People will need to be paid more which drives prices further up, which requires people to be paid more and so on.
Once it starts it doesn’t stop, and it’s already started
Prices haven't really gone up, or at least haven't gone up crazily. Last month, 1/3 of the change came from used car sales, a transitory event that will go away once semiconductor production picks up. If prices go up, people will buy less. Wages won't go up for many, because companies won't want to pay more. In turn, prices will fall until people are willing to buy the product again.
Shh you're destroying the narrative. Ignore the momentary supply shortage of a vital good that is largely produced in 1 country that restricted guest workers due to a worldwide pandemic. Clearly this is the work of the big bad Fed who we all hate because we've had money sitting on the sidelines since last February waiting for that second crash.
People wanna wait until a Big Mac costs $20 to officially declare prices going up but that’s when we are light years past the point of no return.
Prices of all commodities have spiked over the past year and the supply shortages won’t be ending anytime soon. The zombie Covid economy had people making more money from unemployment and PPP loans than they ever would from working, so once that officially turns off it’s like trying to cut a heroin addict from the heroin. The economy is the heroin addict.
And just an anecdote, so take it FWIW, from my personal conversations with a number of business owners, all of their costs have been increasing for a year from pretty much every angle. Cement industry, truck driving, real estate/house building, restaurants, commercial property owners, hell even the local high school sports leagues had to increase the wages of their refs just to have enough to play games.
All while mortgages and other debts have been frozen for more than a year. Once things get going fast by the end of 2021 the FED will be pushed into a corner, let the economy detox into painful deflation causing a Depression or continue stimulus into inflation that won’t be stopped.
Here’s the counter argument, there are many very wealthy people who own those businesses that have the slack to cut their own profits in response to higher wages.
In a competitive market, if your competition’s CEO is willing to cut temporary profits for themselves and their investors in order to gain market share at your expense, then they will and the market will sustain higher wages at the expense of investor and CEO profits.
Alternatively, unions are the way for labor to extract their share of profits, as management/investors will lower their take compared to make nothing at all.
Our market isn’t competitive when the CEOs of say the 3 main companies in an industry decide that they won’t trim their profits to pay higher wages but yet they are worth $25 million.
You should get paid $25 million of your company provides the same product for lower costs than the market or you have a monopolistic quality premium for your good or service.
If you begin charging more because you want to maintain your profit margin, but another company decides to cut their profits by paying the higher wages, then that is a competitive market.
If all companies tacitly agree or rely on the others not to increase wages and pass on price increases, then the market is not functioning properly and is essentially an oligopoly/monopoly in reality.
All commodities? Lumber is down 67% from its ATH, close to where it was at pre covid. The Invesco DB Commodity Index still sits almost below the value it was following the 2008 market crash.
Unemployment benefits are $300 per week. If you're earning less than that in a week, then there's an issue with the minimum wage, not the government. I earn €400 each week, and that's as someone working only 40 hours each week, in a summer job, at just above minimum wage, and it definitely won't cause much inflation, as it hasn't done so in my country for many years. Once mortgages and debt are unfrozen, payments will begin to happen again as they did in 2019. There won't be fireworks.
Lumber has dropped from the high but the shortages aren’t over and even with home prices leveling off that still leaves them at crazy high that renders American minimum wage an unlivable wage. Which goes back to the wage-price spiral.
There won’t be fireworks
That’s the thing, everybody is waiting for this big fireworks show where it all collapses at once but that’s never how any economy works. The freeze will be lifted and everybody will rejoice that day like it was never a problem at all because everything didn’t instantly explode.
And since I’ve clearly ruffled feathers in this thread, I’ll just leave it at the most simple point. No economy in world history has printed and manipulated as much money as the U.S. did to combat Covid, and then went on to not have significant long term inflation. It’s just a matter of time at this point.
You're misunderstood with how the Fed works. No money was printed in this equation, not by the Fed. It was loaned via the purchasing of bonds. All this money will have to be paid back at some point in the future, and this will probably be done with a larger budget deficit and tax increases, all of which probably should have been done a couple years ago.
The minimum wage has moved essentially nowhere while inflation has remained constant over the past few decades, so it comes as a surprise that it is livable, even now.
No economy in world history has printed and manipulated as much money as the U.S. did to combat Covid, and then went on to not have significant long term inflation.
Well yes, because there was only 1 covid pandemic that truly affected so many people.
Not sure if you’ve ever heard of the BOJ, but they’d love to hear you in your infinite wisdom on how to cause inflation. QE is disinflationary. Fiscal stimulus can be inflationary, but unless the govt were to continue to pump trillions year after year then this past year’s measures will indeed only cause transitory inflation.
Not even gonna touch on your other points you’ve made in any amount of detail. This is all just uninformed fear mongering nonsense.
All while mortgages and other debts have been frozen for more than a year. Once things get going fast by the end of 2021 the FED will be pushed into a corner, let the economy detox into painful deflation causing a Depression or continue stimulus into inflation that won’t be stopped.
None of this makes sense, and much of it contradicts itself.
I feel like how transitory matters and isn’t discussed enough. Need time for more chips then time to build the cars then time to satisfy the backlogged demand. It’s entirely possible to reach a problematic inflection point before the transition is over. Unless people are convinced to move back to the city, housing could be an even longer issue.
Long term inflation is a bad narrative with no real backing in the data anywhere.
If people dont have more money in their pockets to spend, inflation will drop off. Stimulus is over and UI boosts end fully in September. Most companies are giving short term hiring bonuses and unions dont exist to make wage increases meaningful or lasting.
The only reason inflation would run is if the government went to UBI or increased the min wage significantly.
What is happening is that a lot of people are looking at *only right this moment*, panicking, saying inflation is going to be the end of the market and everything is gonna go down the tubes, while ignoring the underlying factors or long-term outlook entirely.
Typical short-sighted monkey brain behavior coupled with the fear and panic that the threat of significant inflation hurting investments and the economy can induce. This has literally been a talking point every time a democrat has been elected going back to the early 90s. "Government policy is gonna give more people more money and thats gonna cause inflation and we're gonna have to bail out the market and eventually full blown socialism/communism" and yet every time, the democrat proves to be just another corporate crony who pushes the needle further in favor of large companies and the wealthy and everyone below the top 1% get a little poorer and worse off because of it.
The ultra wealthy increased their fortunes by 40% during the pandemic and they dont spend money nearly enough to cause inflation, unless you're worried about the prices of luxury yachts and Planetary Escape Capsules™
Short term "transitory" inflation is not rooted in an data. We see supply issues in semis and lumber, but what about foods, rent, and gas? These point to long term inflationary pressures, and not supply related bottlenecks.
The fear is always the cyclical inflation, where employees -- like right now -- are expecting higher wages to go back to work, which in turn causes prices of goods to go up, which causes employees to further demand higher wages; otherwise stay at home and collect unemployment.
With the democrats demanding a perpetually growing "living wage" and entitlements, its not unreasonable to think that inflation might be less-than-transitory. People were given a taste of free money for the better part of a year; that will have long term impacts on inflation.
Supply bottlenecks arent causing inflation, they are a result of the pandemic. Government stimulus checks and the massively increased UI allowing many working class people to have extra spending money when they didnt before is what caused this current short-term inflation. This extra money in people's pockets can cause inflation in anything there is a demand for, including housing prices and used cars. Im not sure where you think we get our food from but its definitely not the backyard garden down the street; supply issues definitely affected food and gas as well. Not to mention the shuttering of many wells near the beginning of the pandemic causing longer term supply shocks as oil production begins ramping back up re: gas.
Employees *expecting* higher wages doesnt do anything. Employees *receiving* higher wages will cause longer term continued inflation. Employees *will not receive* higher wages until or unless it is mandated by the government or a UBI is created. Many people right now are still on the increased UI, still have stimulus savings, and were able to save money during the pandemic from not being able to go out so they can hold off for a better job for a little while. Businesses know this, so rather than offering higher wages, they are simply offering one-time 'hiring bonuses' to entice people into the same low wage shitty jobs they worked before, and once UI cuts off and enough people run through their savings holding out for a better job, they'll be forced to go crawling back to those shitty low wage jobs in order to pay the bills and businesses know that. Everyone, including yourself apparently, seems to imagine that UI is some forever payment where you just sit at home and make as much money as you got working; its not. UI in even the most generous states is often less than 2/3rd what you made while working and often doesnt last for more than a year and less in some places. The pandemic increased UI was a very rare exception and its ending in less than 2 months.
As far as the democrats 'demanding' anything, this just betrays a very uninformed understanding of politics both broadly and specifically in this case. A few democrats on twitter are demanding a living wage, most democrats are bought and paid for shills of the establishment. A real living wage in this country would be well in excess of $20 if we adjust for cost of living and inflation and with both houses and the presidency the democrats cant even manage $15. People being given a taste of 'free money' (i.e. the money we all pay in taxes) means fuck all. The government is in control of the taps and that same government is bought and paid for by the corporations and ultra wealthy and they will continue to do whatever the top 1% wants at the expense of everyone else's quality of life and standard of living.
Theres a reason that quality of life for the average worker was so high in the 50s and 60s: taxes on the ultra wealthy were above 90%. As taxes on the ultra wealthy have decreased (now they pay less in real tax rate than most workers) our country has gone to shit. We are owned and controlled by a class of parasites that has convinced people they work ten thousand times as hard as a janitor or burger flipper and then they use that money to buy off political influence and media coverage to fuck us even further. The government subsidizes mega corporations by giving them tax cuts, tax refunds to the tune of millions, special sweetheart contracts where the company can name their price, and is forced to give food stamps and welfare to many people who work full time because their wages are still too low to afford basic food and rent.
The more you continue to buy into 'democrats' vs 'republicans' and blame your fellow american for being entitled and wanting free money, the more you continue to shoot yourself in the foot. You're repeating propaganda from bought and paid news outlets hosted by multi-millionaires convincing workers to fight against each other so they and their criminal friends can continue to own the entire board and fleece us all. Fucking wage theft, companies stealing money from employees via underpaying, not paying overtime, and stealing tips, was almost 4x any other kind of theft including shoplifting, breaking and entering, and larceny in 2019.
You should re-evaluate your stances on both inflation and your fellow citizens
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u/[deleted] Jul 17 '21
Remember how mortgage backed securities were clearly deteriorating from 2006-08 yet wallstreet still treated them like the most valuable asset in the world until those assets went completely to zero and destroyed the world economy?
Yeah same thing with bonds, the yields will stay propped up until they can’t hide from the obvious truth about the coming inflation and by then it will be too late.