The conversation started with my investment person about two particulars which I was curious as to what he was expecting in returns. Those two were losing somewhat over the last 5 months.
Excitedly, he started off on how the Fed was going to rein in inflation. I listened and answered. However you do it, raising rates is not going to fix the infrastructure for supply chain, much less JIT, and the processes of increasing supply.
In 2008, we had similar occurrence for some products such as semiconductors, etc. for automotive. In 2020/21, we find automotive blowing themselves up again. Prices have gone up based upon their failure to plan which caused the shortages for this and other parts sourced. They still do not want to carry inventory. They just pass increased prices to the customer and blame the semiconductor manufacturer, the plastic resins producer, rare earth providers (we won’t take anything from the Congo [you know that stuff with a C on it?]), etc. And their suppliers also take advantage knowing they will most likely order the same component again.
Low and behold, the Fed will whack consumers, the peasants of the economy. This is not unusual, Volcker did it as did Greenspan. Main Street paid for Wall Street in 2008 and Bernanke did similar. Yellen is also in agreement of the same. Main Street is not the cause and the buck stops there each and every time. In this case Main Street is not the cause; but then, it was not the cause in 2008 when AIG was ready to collapse.
Back to me
My investments have been doing well by me. I only took concern with two choices made with our funds. One of which has lost several $thousand to date. For some, this would be mere peanuts. For my wife and I, it may be a vacation somewhere as we supplement our income with gains. So, I was offered a sell off and a tax break to rid myself of the shares. Which I am thinking would probably end up in a particular person’s portfolio, if legal?
So far its paper.
All of this was pre-economic blowup to which the Fed is looking to increase interest rates in any way possible to slow the economy down. It appears knights versus pawns again, again in order to save the U.S. Economy kingdom. And their interest rate, etc. will definitely NOT fix supply chain issues. Nor will it stop the taking advantage or rent-taking as some call it.
By now, you may have figured out where I am going with this. I am not ready yet to discuss the main point. It needs some more history in explaining why things are a bit different today. Different for us peasants as compared to some of the rest who are at a higher income level. Give me a bit and I will get to it.
In 2008, then president Barack Obama put together a not-nearly-enough stimulus package to help with the crash of the economy due to bankers, investment firms, banks, mortgage companies, the Moodys of the world, Congress, etc.; the nobility and knights of Wall Street were busily gambling using rare and unique ways of making money with pennies on the dollar backing them in case of default. This all started when Greenspan took over the Fed and gradually loosened the restrictions on commercial banking under Glass-Steagall allowing more investment, and also the separation of commercial and investment banks as specified under the National Banking Act. Now all banks could gamble using Main Street funds also. Remember the Cassandra Brooksley Born’s warnings?
The ~$800 billion in Obama’s stimulus package was successful in several different ways; but, it should have been larger (thank McConnell for this). The 2008 recession lasted far longer than todays recession. Participation Rate percentage never fully recovered. Today, even with the applauding about the numbers of people back in the Labor Force, there are still millions out of the work force as reflected by Participation Rate. Onward . . .
So, What is Occurring?
Inflation is sticking its ugly head up again. The Fed is worrying, the economy may be in a runaway mode. Maybe Powell is just jawboning? However, he has said he would take the necessary actions to limit and decrease inflation. Which of course means the peasants will pay more in prices for goods they are trying to buy, to which they are already paying higher prices, and chasing the limited “supplies” with more dollars.
Note, I said supplies which I explained to my financial wizard. If supplies are the issue, then increase production. Oh but we do not have enough chaises. Well yeah, we do not have enough truck chaises as they are tied up on the West Coast waiting to be moved. Furthermore, we do not have enough chaises because it took so long to offload the ships. What was adequate in the past is now overwhelmed by the numbers of containers. And then the ports had to be told to work more shifts, pay labor more, and offload the ships. What a novel idea.
Additionally, trains carrying containers take forever to get around Chicago to Detroit at 5 mph.
The ports were still working one shift till Biden asked them for more shifts. Why does it take a US President to ask the companies to add more shifts?
In “The Atlantic” was a pretty good nontechnical article on the issues we face, “Stop Shopping,” by Amanda Mull. Stop shopping and the shortage goes away and also does the ability to charge inflated prices due to the shortages. As I explained to my acquaintance, this is more an issue of supply chain driven shortages than demand driven shortages.
Fix the damn problems and quit whacking the peasants. But wait there is more, as some detail is given by the author;
“70 percent of the country’s economy is too much spending on too few goods, according to the Bureau of Labor Statistics. But the spending is not distributed equally. In a typical year, the most affluent 20 percent of people account for nearly 40 percent of the country’s consumer spending, and this wealthier group’s purchases are disproportionately discretionary.”
It is a what the hell (or use other words more appropriate) moment . . .
“The affluent group spent much of 2020 working from home, largely insulated from mass unemployment and socking away the lion’s share of what Bloomberg Economics estimates as $2.3 trillion in extra cash this group’s members might have otherwise spent on vacations or restaurant meals.”
Ok, so the nobles and knights are safe at home, have excess cash to shop online with which is a way of life for them, and are ordering off of Amazon, etc. Spending amongst the lower incomes decreased. This is the main part of the issue. Frivolous spending beyond necessities to which higher interest rates, etc. do not discern who is poor or the upper crust.
“Resources get allocated according to little other than profit.”
Before the pandemic, many truckers looked for work elsewhere outside of hauling goods out of container ports. Port trucking is particularly brutal and poorly compensated work. Instead of directly addressing this type of obvious problem in how goods are moved, America’s government and media plead with Americans to spend more money —to create jobs, to revitalize the economy, to save the country.
Add to this “lease to own (Trucking, Railroads, and Industry)” for independent truckers and sitting around the ports for hours waiting on a load. No one pays for the sit around time.
Exploitation of this type of discretionary shopping uses the same logistical resources making this spike possible and are also needed in other parts of the economy. For example, the function of making school lunches is an important civic function. Having the components necessary to do so might not be available for reasons having nothing to do with how much food is theoretically available
Hundred-dollar throw-pillows made by the pillow-idiot can pay more for access to trucking capacity than a local food distributor providing food component to schools.
Why would you buy from the pillow guy when he is taking advantage (being polite here)?
If it was knights v knights or middle class and upper class v the same, watch how damn fast the problem would get solved. Powell does not care . . . It is cushy up there at the top. And he has a well worn path to go down, one used by his predecessors.
Americans trying to buy is not the runaway train here, industry owns the issues pushed mostly by the upper 20%.
“Stop Shopping,” Amanda Mul, the Atlantic, October 22, 2021