Americans Shopping is a Runaway Train?
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.
Another issue?
“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
‘So, I was offered a sell off and a tax break to rid myself of the shares.’
One of the disadvantages of 401k/IRA investing is that it offers no tax breaks for losses.
The other is, no reduced-rate long-term capital gains tax rates for appreciated shares.
So, presumably, you are talking about shares held in a non-retirement account.
Fred
You have sound advice. I think I noted this the opening to other unrelated topics.
Another unrelated topic, run: Merry Christmas!
Jack:
Thank you.
We are mostly unpacked and trying to find places to put them. No basement.
It is a nice home and we are happy to have it.
Merry Christmas Jack.
Well. Ho HO HO from here too.
I think I agree with Run, at least it agrees with what else I think I know..but then I only know what I read on Angry Bear.
But here is a note from the grinch: He thinks we all are going to have to learn how to do with less anyway. I think a good place to begin would be selective boycotts on powerful businesses to encourage them to put pressure on politicians to fix things and not just distribute the spoils to …their favorite powerful businesses. …oh.
also noted, those of us “in the market” are really on the wrong side of this. i hope the people out of the workforce are discovering that time is more than money.
Coberly,
Merry Christmas.
My traditional fixed income pension fund is “in the market,” so that I do not need to be. That had been my employment goal throughout the 70’s, but I only reached it in the fall of 1980. It has given me great peace of mind during troubling times in retirement.
People out of the workforce that made that choice for themselves either have an off-books cottage industry going on or another income in the household that made solving childcare a better return than working under Covid-19 conditions. People out of the workforce that did not make that choice for themselves would most likely trade a bunch of free time for money. Things do not get better for people once that they are homeless living in a shelter or under a bridge.
The tragedy of the commons is bad enough during the good times, but during times of economic insecurity then it is soul crushing for many.
Ron
Merry Christmas
Everything you say is right, but I was not very clear about being inthe market being on the wrong side. I might even be wrong.
I’m just saying that making money from stocks and bonds is shifting money from “workers”
to “capital.” Nothing wrong with that as long as you understand what you are doing.
I have done it myself, and done fairly well by it, but not so well that it doesn’t scare me
to death that I will lose everything to a bad day on the market that doesn’t recover in my lifetime. won’t affect me much, unless inflation and other sins government is heir to wipe out the grocery buying power of my “pay as you go” insurance arrangement with other generations of workers…who may not be doing so well themselves because “capitalists” have
monopoly power in the labor market. point out my errors. i will try to fix them or
defend them.
Coberly,
Back in my senior year of high school our introduction to economics in government class taught me enough about the antisocial incentives created by the capital markets as they have been taxed, especially since 1954, such that I never wanted to participate in them myself. Of course though the best that I could do and still have a reasonable retirement was participate at arms length through a fiduciary.
I will link to an article containing one of my favorite parts of Keynes’s General Theory.
[There is a longer Keynes excerpt at the link below, but I provide herein only the first two paragraphs of their slightly longer excerpt from Keynes’s General Theory.]
https://www.pbs.org/newshour/economy/john-maynard-keynes-stock-market-past-week
It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it “for keeps”, but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.
Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow…
Ron
I think I knew that. But staying out of the market is a gamble too.
Social Security is supposed to take the gamble out of “at least enough.” But as long as the criminal rich keep hacking away it it, politicians are bone stupid, and the people know nothing…even SS is at risk. And of course it was never going to make you rich.
And..you may not see the point of this… back in the day I worked for the Highway Dept. we were going to widen a highway through a small town. the town had built a very nice bike path alongside the highway but at enough distance from it to feel safe and be kind of pleasant. We were going to bring the highway right up to and over their bike path, but we promised we would build them another. We gave then a twelve foot wide strip separated from the highway by a white line.
Moral here is we don’t need carbon dioxide to destroy what makes life worth living. Money will do the job.
(while i’m on a roll: another time we were going to widen a freeway which involved condemning property owned by poor people next to the original right-of-way. by eminent domain. of course we gave them “fair market value” for their property… which would not have paid a year’s rent on any apartment they could rent in their fair city.) Same moral.
Coberly,
My dad worked for the Virginia Department of Highways until he cashed in his retirement in 1966 to open a concession stand at the Virginia Department of Game and Inland Fisheries’ Lake Orange.
Keynes was a giant and as such was also a largely misunderstood giant by most economists and nearly all laymen.
I’m not so certain that Powell et al don’t care as much as it is that they are too indoctrinated in the Milton et al concept of how an economy works. That is, money from money. Thus the solution is a money flow problem.
They just do not have the mental/intellectual capacity to see it any differently. Dare I suggest: economic narcissism?
Holiday sales soared, with e-commerce notching huge gains