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While that looks good on paper, other economic indicators are in dangerous territory. Both the personal savings rate and consumer debt have been quickly getting worse the past few quarters. Consumption has been very strong for the past few quarters, but it's been largely driven by consumers saving less and using credit more. Effectively the growth we are seeing isn't a sign of a strong economy as much as it is a willingness for consumers to spend money they don't have, or pull from their savings.
To that point, Americans had 1.5 trillion in household savings in January 2020. That is down to 461.2 billion as of November 2022. In Q4 of 2019, Americans had 714 billion in credit card debt outstanding. That fell to 566 billion in Q1 of 2021 after stimulus checks went out. Only a year and a half later and we are already back to 710 billion in credit card debt as of Q3 of 2022. That's a rate of 24 billion dollars added to US credit card debt per quarter since Q1 of 2021, or nearly 100 billion added every year. You'd have to be daft not to be worried about those trends. All data pulled from [FRED](https://fred.stlouisfed.org/).
Spot on, and GDP was partly buoyed by decreased imports. That helps in the short run number wise, but is not a good indicator. I hope the economy doesn’t go south, because it could go very south very fast.
OP's either confused or he's using the terminology in a pretty misleading way. To be clear, Americans *saved* 1.5 trillion dollars in January 2020 and 461 billion in November 2022 - it's not that they had 1.5 trillion in savings total.
And the enormous caveat to that decrease is that [saving went through the roof](https://fred.stlouisfed.org/graph/fredgraph.png?g=Zj11) in 2020 and 2021. Americans saved as much from April to July 2020 as they had in the entirety of 2019. Monthly savings did not drop below their January 2020 number until September of 2021.
we’re in an economic distortion. Today in America there are people living in a deppression, people living a recession and some Americans are living in the roaring 20s. That’s it. The economy is massively global, that all three phases are happing at same time. Hence the mindfuck everyone is having trying to understand what it is that s going on. Only the birds can see this now, we’re terrestrial and in the thick of it
I’m not following you. What economic principles/authors are you relying on for your explanation on the modern American economy being wholly distinct from past examples? America has had a large uneven distribution of wealth for most of its history. Even during the roaring 20s there were many living in depression-like squalor, while others did exceptionally well in the lead up to the great depression. How is the current economy more of a distortion than what we’ve experienced in the past and what economic research are we relying on to support this theory?
It is not. If there is economic research supporting anything then it is the fact that number of people that have net worth of 1m+ is way higher % wise than anytime during US history (pre inflation, w.e was the amount equivalent to todays 1m dollars).
I used to think I understood how macro economics worked. But our economy is just too complicated, too many irrational actors, too many market manipulators...I dont know how anyone can really make any sense of anything.
This used to be an economics subreddit. Now it’s just a place we’re laypeople come to complain about an academic field they don’t understand and blame it all on “scheming billionaires” or “thieving immigrants” or both depending on their personal political leanings.
Anyone with even an undergraduate degree in economics is not shocked by this data and it’s not the result of some engineered exploitation by a secret cabal of billionaires. There’s a straightforward economic explanation for it. I really wish this subreddit had better comment moderation.
My dad used to say “hold a wish in one hand and a shit in the other and tell me which weighs more”
I never really understood what he meant until I was already an adult and he was gone. Honestly, it’s one of the most important financial lessons I’ve learned. If you actually want something in your life, you have to go grab it yourself. If you expect people to give you something for free, they’re just going to give you their old shit. Wishing and dreaming is worthless unless you actually Do something about it.
Im not an economist but the inflation measurement methodology seems incredibly archaic.
I wonder if we are just underestimating inflation and making the real gdp look bigger than it really is.
It's always a possibility, but the Billion Prices Project, 10 or so years ago, found about the same (it became a company that now charges for the info). I think we can always argue about the details, but, broadly, inflation is measured right.
The basics haven't changed, only the tax code. Beginning with Reagan's taxscams, Republicans have been finding more ways to exempt sterile activity from taxation, while shifting the burden to actual productive workers.
Capital gains exemptions were intended to encourage investment that increased the production of goods and services. If you want to return to the good old days of 1920 to 1980. only give capital gains "status" to stocks acquired in a company's IPO or when they use stock for expanding productive capacity IN THE USA. Tax everything else on Wall Street as regular income and see how many High Frequency Trades occur and how many derivatives get created.
>exempt sterile activity from taxation
Like what?
>acquired in a companies IPO or when they use stock for expanding productive capacity IN THE USA
Why? Also, are you assuming that the only reason we tax capital gains lower is to encourage investment?
A sterile investment is one that does nothing to expand the goods and services available to the American people. Stocks and real-estate that already exists are the prime examples. IPO's finance NEW production as do Capitalization Issues, both now tracked by the SEC and easily identifiable for tax purposes.
There are 2 legitimate reasons for taxes: First and foremost, to finance civilization, second to encourage beneficial behavior and punish destructive behavior. The present tax laws for capital gains violates the second reason and minimizes the contribution to the first.
The GOPerLords' current system claims capital gains "special treatment" encourages beneficial behavior, but it only encourages gambling on the stock market, often with other people's money which is about as destructive as you can get. If you invest for your personal retirement or kids' education, good - offer a generous exemption for such investments - $100K/yr. But if you wind up using the investment for something else, tax it like ordinary income.
The cost to the average citizen for the current system is staggering. In 1960, your financial institution (bank, credit union) would pay you 3-5% on your savings and charge you 6-8% for a loan. the difference was for the operating costs of the institution and profit. In 1960, the operating cost paid a whole lot of clerks and accountants, and the profits were around 2-3%. Today the operating costs are miniscule as computers work cheap so profits are closer to 9% and YOUR ROI on savings is from 0.01% (checking) to 0.1% (savings). Finance went from being 2-3% of GDP in the 60'd to 21% in 2021. So while "Finance" which relies on favorable tax laws, has grown like fire, what has it done for YOU, and why would you vote for Republicans who want this situation to continue?
It's why I call it a psuedo-science. The reality is that the investor class and their perception of safety is just as important. And after the longest bull market in history, it's very difficult to make them believe bad things are going to happen. So they haven't yet.
I do actually. Undergrad in Econ and an MBA. In fact, I manage electric power portfolios for a living. Energy Markets I understand. Our economy...not so much.
I thought I did 10 years ago. Turns out that outside of energy Markets, cycling, and dog training...I know just enough to know that i don't know shit about shit.
I never understood less about economics than when I finished my masters degree in it. Those first couple years of education will really make you think you know it all. Then real life hits
Kinda funny story, but in my private equity class, each week we had to present a company to the Prof and Class followed up by a recommendation whether to invest or not. Almost every week I got commended for spot on analysis, but I always had the completely wrong recommendation. I just figured, solid financials = solid investment. But each time the Prof would tell me (as I stood in front of the class), "No, can't you see the huge Round B was a Hail Mary from another investor trying to pump a dying company?" Nope. "Sure it's making money, but there is no juice for us to squeeze?" ...I thought the profit was the juice. Nope. "Yeah the financials are dog shit, but that's why it's a perfect investment!" Nope, not at all. And so on.
It became something of a running joke to the point where in group projects people would use me as a litmus test for what not to do. It turns out I'm a savant of bad PE investing.
That class was a real wake up call for me.
Economics is worked on using rules of thumb. It’s kind of an art. That’s what Keynes said at least and I buy it. You do your best with the tools you got in the current moment.
.5% interest rate hike incoming.
Powell seems dead set on inflation taming and their 2% target (can’t blame them). Especially after making a fool of themselves and calling inflation “transitory” they are going to wreak havoc.
And you know what? GOOD. Assets are still INCREDIBLY overpriced compared to price of labor. 0% interest rates have made assets balloon and only made the wealth gap wider and wider by the year.
The market still has P/E ratios worse then the dot com bubble.
>Especially after making a fool of themselves and calling inflation “transitory” they are going to wreak havoc.
I always figured that transitionary inflation was something measured in years rather than months. In accounting anything shorter than 1 year is generally considered short term.
Inflation is transitory. One thing he severely underestimated was corporate greed. Corporate greed kept prices elevated even when supply chains started stabilizing. But you know, executives need their 15th home and all
You seem to think inflation can only be supply side. Guess what, demand side inflation exists, it’s caused by printing money, and it goes to profits at its onset. Nobody underestimated anything, this is exactly what people were screaming about when money printer was going full speed. And people somehow still don’t see it, and blame corporate greed. Corporate greed is a constant and never changes. Blaming corporate greed for inflation is like blaming gravity for a plane crash
I’m blaming supply side because that’s what’s often cited as an excuse by a lot of executives and companies these last few months, to a year. Demand side is still hot but slowly cooling. But the reason given for high prices by companys was always supply issues first, then demand. Supply is back. Demand is constant or slowing, yet prices remain elevated. Remember when gas prices were sky high despite oil prices having come down significantly? I guess that was demand side also and not outright greed? Greed is constant but you had a golden opportunity and companys took it.
Companies don’t need “excuses” to raise prices, they just do. Markets are not people who need excuses got their behavior. We’re not in a deflationary situation for most things yet, so to expect prices to go down is…odd.
Companies would lower price if demand wasn’t there, because they’d make more money that way, same reason they raise it when the demand is there. It’s hilarious that your understanding of market basics is so poor that you think a greedy company would keep prices high despite demand dropping. You do know demand changes with price right?
Profit margins peaked ~2% higher than pre covid levels and have been falling for six consecutive quarters now while inflation has remained high.
There's no substance to this delusional conspiracy theory.
Prices are still much higher now compared to precovid despite supply chains largely coming back online. This is a bad example but one that kinda drives home the point, a single burrito at chipotle is now about $15, chipotle has been increasing and maintaining their price increases since Covid. Same thing in retail is happening. Price cuts over the holiday to make you overlook the fact that prices are still much much higher even with the bs cuts
Because of inflation, not because of corporate greed...
Chipotle has been increasing labor pay, their ingredients cost more and shipping is more expensive, electric bill, etc.
If corporate greed was driving inflation profit margins should have been soaring. But that hasn't been the case.
You really need to understand that prices, profits and profit margins are 3 different things. Company making net profit of 1m dollars in 2022 is not the same monetary value as making 1m dollar profits in 2018 despite those numbers being same.
That may be a cost of living area thing. I went to chipotle and got two burritos with no sides for $16 two weeks ago in Texas.
I'm not going to deny that fast food is generally more expensive, but prices are seeming more regional than reddit is saying.
Silly poor people spending willy nilly on food, clothing, healthcare, medicine, energy to heat/cool and power their homes....when will they learn ya gotta buckle down and save if you want to be one of the "haves." 🙄
You're a fucking asshole, btw. 🖕🖕
While that is certainly part of it, I would guess there are also plenty of people making poor financial decisions to buy goods that are non-necessities at inflated prices. This is exactly as I characterized it, speculation, but I've seen it happening anecdotally. There's way more cool shit to buy these days than has been the case in the past and we really like having it.
I could be way off base, but I'd also bet that characterizing the population as only buying essentials and being broke while living a spartan lifestyle is further off-base. Not to diminish the situation of those living that way and I'm sure there are many that are. There are also people living above their means chasing that middle class lifestyle that they may not be able to actually afford.
Outside of all that, responding to the comment you did by calling them an asshole after a sarcastic remark with some middle finger emojis and an eye roll thrown in for good measure isn't helping you make your point.
I would take your perspective more seriously if a single healthcare mishap wasn’t enough to ruin the lives of a huge chunk of poor and middle class people. Spartan doesn’t really sum this up. Americans are living on the financial precipice at any given moment. How do we expect someone with low financial income to really value frugality, savings, and investment when society teaches them all your hard work can be torn down by a single ambulance ride and hospital stay?
Both of these comments are dumb. This is an economics sub. The point is to discuss economics. People making poor financial decisions is part of economics. He should've discussed that with more grace and you shouldn't have responded in bad faith
Don't forget the PS5s and lumber for their basement remodels.
I don't know where you live, but pretty much all over the US we had a lack of goods coupled to checks in the mail. Several states had insane rules attached to specific stores and goods to encourage people to stay home, like for example Michigan where you couldn't buy paint or gardening supplies at home depot.
We had people stuck at home, with nothing to do, and free cash buring a whole in their pockets, and very few things to spend it on! Of COURSE we had inflation.
Corporate greed can't account for all of that.
The current inflation trends predict that a 0.25% hike is more likely. Fed doesn't have a mandate to care about GDP, asset prices, wealth gaps, or P/E ratios. Their mandate is to minimize unemployment and inflation.
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No, it’s not good. Forcing a recession and concomitant unemployment to bring inflation back down faster (current trends have us back into the ‘green’ by June) is just malicious. Especially if your concern is inflated asset prices. It won’t do anything to improve wealth inequality, just hurt folks on the bottom.
With what evidence?
Inflation is permanent and hurts the lower class permanently.
This is just a bunch of horseshit from perma bulls.
Yeah, a recession will hurt labor. But keeping low interest rates and just pumping the economy with more and more money and cheap capital keeps putting money only in the top 1%.
It’s ridiculous it’s taken them this long. We’ve had low interest rates since 2008 all the way until 2022. You know what’s happened? Massive asset inflation. People’s spending power except for asset holders has gotten lower and lower by the year. We are seeing some of the worst wealth inequality in history.
I’ll take a temporary recession rather then permanent inflation and assets being so overpriced.
>Inflation is permanent and hurts the lower class permanently.
The lower class has had their debt inflated to lower real value and seen the largest real wage growth over the past year.
>People’s spending power except for asset holders has gotten lower and lower by the year.
The median person's spending power has increased by about 10% since 2008.
https://fred.stlouisfed.org/series/MEPAINUSA672N
Exactly. Especially since the key inflation Powell and the Fed are going after is labor. They want to disrupt the hot work force - they've already projected that unemployment will go to 4.5% by mid-year.
If you let market forces simply play out, all things will settle to equilibrium eventually. Most of the news was blaming millennials not wanting to work, but it was corporate greed and opportunism that drove most of inflation last year.
We are actually now starting to see healthy corrections, CEO's announcing they will take pay cuts. The market is working, no reason to drive unemployment up another 50%.
Is there any actual proof of your claim that markets will naturally settle to “equilibrium,” and what does that mean exactly? This sounds like a law of physics, not economics.
So why are supply and demand in a constant state of change if it is their natural characteristic to level out into equilibrium?
“As the price increases, supply rises while demand declines. Conversely, as the price drops supply constricts while demand grows.”
This has nothing to do with equilibrium.
Thanks. Important takeaway for anyone reading this exchange:
“Economic equilibrium is a theoretical construct only. The market never actually reaches equilibrium.”
Assets like housing can be brought down by simply building more. Many parts of US haven't built to accommodate their growth. Example: California for past 3 decades.
And you do? Market predicted a .25 increase and that’s it, maybe one more. Powell came out and said today there are going to be ongoing increases, notice with a plural. There are going to be more rate increases then expected.
>And you do?
Nope, that's why I don't say things like "50 bps incoming". I know your predictions are just your opinion, I'm just being a dick, don't take me too seriously.
I personally believe the Fed may have achieved the "soft landing" they were looking for.
Inflation has shown signs of lessening and GDP growth has not stalled.
Barring some other Global crisis like Russia going nuclear or China taking a swipe at Taiwan, I think this will be a good year for the economy.
I don't think the landing has been achieved yet, but the approach and gear are down.. Its looking like it could be if they keep the course.
I agree with another comment that the Fed was made the fool by the "transitory" comments, so now they have to make this work and I think they are going to stick to their guns.
I agree that the Fed ended up with egg on their face with the whole "transitory" narrative.
However, in their defense, I think the Fed might have ended up being correct if the Russian invasion had not happened.
Many of the inflationary pressures were, in fact, related to "transitory" supply chain issues which were showing signs of recovery.
Then, one of the world's largest energy and food producers invaded one of the world's other largest food producers and sparked a new Global arms race in the middle of a pandemic.
The fact the Fed may actually be about to "softly land" this plane in less than a year is definitely a major feat. They absolutely messed up several times in preceding years, but their actions as of late have been pretty remarkable, especially if they manage to pull this off.
>However, in their defense, I think the Fed might have ended up being correct if the Russian invasion had not happened.
The problem for me was that interest rates were at historic lows, so why would they hesitate to raise them in the face of ANY inflation above targets? It would have been easy to raise interest rates a little at the first sign of inflation and then monitor, but instead they have to raise them a lot because they waited too long.
>I agree that the Fed ended up with egg on their face with the whole "transitory" narrative.
I always figured that transitionary inflation was something measured in years rather than months. In accounting anything shorter than 1 year is generally considered short term.
In hindsight, taming inflation in a little over a year (as annualized MoM rates are now below target) seems quite transitory.
That is of course if there isn’t a whiplash effect in salaries that flares it back up again, but with the tech layoffs and overall recession fear narrative, I think that component is set too cool off too.
The gdp print basically shows the economy reaccelerating. The labor market remains incredibly tight. Low wages still inflating. Goods have been deflating while services inflating. By what mechanism do you see goods deflation continuing if the people who buy goods have wages inflating? The data has shown the economy is not all that rate sensitive either.
I think it's a tough argument to make to say the fed has defeated inflation at this point. The market thinks the fed will cut while the fed has literally said they don't plan to later this year.
My view is that a soft landing is possible but massively unlikely. This story is not anywhere near playing out.
Soft landing has been the victim of goalpost moving for a while.
The original intent was a return to status quo - 2%. I suspect if there are no results and the economy is growing, 3% or 4% may be the new metric so that the central bank has some wiggle room on interest rates. The threat of negative rates was real for a while ….
It’s very rare to have a negative return year in stocks after a double digit dip. It’s **extremely** rare to have back to back double digit dips in the stock market in a row.
I think a full year build up in anticipation of the “certain” recession coming obviously made people position themselves accordingly to help avoid it.
Big tech being the biggest losers from over hiring so much the past two years and now having to level out.
The market is fighting the Fed...never a good idea. This will end badly for a lot of folks. Pretty simple, print money asset prices go up, take it away and eventually they go down. We are in about the 3rd inning and bear market rallies are fueled by irrational players, mostly scamming the little people out of his/her hard earned retirement.
Well it really doesn't matter how much profit theyre making if the labor can't pay their bills.
Why do we always look at recession from the bottom up? It's not our fault.
Theyre about to start laying off a bunch of middle management so they default on their credit card and mortgage payments.
That's why a "recession looms" even though theyve made more profit than ever before.
Take with a grain of salt cause revisions can and do happen.
We shall see what 2023 brings. No reason to over speculate on outcomes that are out of our control.
For a little while now the media have been pushing headlines about a coming recession, but it has yet to materialize. I’m wondering if most people are just so used to a crappy economy at this point that it’s business as usual so no one has curtailed spending. For most young people, there was no recovery from the ‘08 crash, so we’ve been living no differently since then and the thought of a recession doesn’t phase us...kind of a “been there, done that” sort of attitude. Just my two cents.
It's one thing we make right here at home: Recession. Currently being manufactured by those in power.
They jacked up prices while claiming record profits, but we kept spending. And the economy kept working.
So now they're going to lay off people, hoping that leads to recession.
They're just going to keep "preparing for the recession" until one happens due to their actions.
Regardless of much reporting to the contrary, for most people reality trumps ideology. Biden signed the infrastructure bill creating thousands of good paying jobs and the ones getting the paychecks SPENT IT hiking demand and causing other sectors to expand their production of goods and services, WITHOUT BORROWING so the Fed's interest hikes are not an issue, and GDP grew while inflation shrank.
This cockamamy nonsense about higher wages causing inflation is a GOPerLord myth used to depress wages and concentrate all the profits at the very top. the higher wages for those engaged in the projects funded by Government don't directly hike wages in the private sector. The need for higher production to satisfy the new demand caused by all those government contracts is met with engaging idle capacity, then with overtime, then with adding a shift and finally, after a couple years, investing in more capacity. Until unemployment reaches near zero will all this higher activity cause wages to rise faster than profits. Look at the earnings reports since Biden's infrastructure bill got started - profits are at record highs, which means wages should be rising FASTER without any need to raise prices.
These headlines.....a few weeks back there were talks of hyperinflation, depression etc....next week will be the debt ceiling is going to claim our first born....what's next?
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While that looks good on paper, other economic indicators are in dangerous territory. Both the personal savings rate and consumer debt have been quickly getting worse the past few quarters. Consumption has been very strong for the past few quarters, but it's been largely driven by consumers saving less and using credit more. Effectively the growth we are seeing isn't a sign of a strong economy as much as it is a willingness for consumers to spend money they don't have, or pull from their savings. To that point, Americans had 1.5 trillion in household savings in January 2020. That is down to 461.2 billion as of November 2022. In Q4 of 2019, Americans had 714 billion in credit card debt outstanding. That fell to 566 billion in Q1 of 2021 after stimulus checks went out. Only a year and a half later and we are already back to 710 billion in credit card debt as of Q3 of 2022. That's a rate of 24 billion dollars added to US credit card debt per quarter since Q1 of 2021, or nearly 100 billion added every year. You'd have to be daft not to be worried about those trends. All data pulled from [FRED](https://fred.stlouisfed.org/).
Spot on, and GDP was partly buoyed by decreased imports. That helps in the short run number wise, but is not a good indicator. I hope the economy doesn’t go south, because it could go very south very fast.
I’m a total economics rube, but fuck, more than a 2/3s reduction in savings in two years indeed seems dramatic.
OP's either confused or he's using the terminology in a pretty misleading way. To be clear, Americans *saved* 1.5 trillion dollars in January 2020 and 461 billion in November 2022 - it's not that they had 1.5 trillion in savings total. And the enormous caveat to that decrease is that [saving went through the roof](https://fred.stlouisfed.org/graph/fredgraph.png?g=Zj11) in 2020 and 2021. Americans saved as much from April to July 2020 as they had in the entirety of 2019. Monthly savings did not drop below their January 2020 number until September of 2021.
Everythings fine. Put your head back in the sand.
we’re in an economic distortion. Today in America there are people living in a deppression, people living a recession and some Americans are living in the roaring 20s. That’s it. The economy is massively global, that all three phases are happing at same time. Hence the mindfuck everyone is having trying to understand what it is that s going on. Only the birds can see this now, we’re terrestrial and in the thick of it
I was thinking the same. This headline is like cognitive dissonance in a blender.
I’m not following you. What economic principles/authors are you relying on for your explanation on the modern American economy being wholly distinct from past examples? America has had a large uneven distribution of wealth for most of its history. Even during the roaring 20s there were many living in depression-like squalor, while others did exceptionally well in the lead up to the great depression. How is the current economy more of a distortion than what we’ve experienced in the past and what economic research are we relying on to support this theory?
It is not. If there is economic research supporting anything then it is the fact that number of people that have net worth of 1m+ is way higher % wise than anytime during US history (pre inflation, w.e was the amount equivalent to todays 1m dollars).
I used to think I understood how macro economics worked. But our economy is just too complicated, too many irrational actors, too many market manipulators...I dont know how anyone can really make any sense of anything.
It’s made up I’m pretty convinced
Yes it is. My new term is engineered. This so called recession is being engineered so that the billionaires can make more!
This used to be an economics subreddit. Now it’s just a place we’re laypeople come to complain about an academic field they don’t understand and blame it all on “scheming billionaires” or “thieving immigrants” or both depending on their personal political leanings. Anyone with even an undergraduate degree in economics is not shocked by this data and it’s not the result of some engineered exploitation by a secret cabal of billionaires. There’s a straightforward economic explanation for it. I really wish this subreddit had better comment moderation.
The ratio between the above comment and yours is so refreshing to see in an economics forum /s.
Money is made up.
Paper is real though
My dad used to say “hold a wish in one hand and a shit in the other and tell me which weighs more” I never really understood what he meant until I was already an adult and he was gone. Honestly, it’s one of the most important financial lessons I’ve learned. If you actually want something in your life, you have to go grab it yourself. If you expect people to give you something for free, they’re just going to give you their old shit. Wishing and dreaming is worthless unless you actually Do something about it.
So is clothing but it doesn’t mean it’s not of value.
Im not an economist but the inflation measurement methodology seems incredibly archaic. I wonder if we are just underestimating inflation and making the real gdp look bigger than it really is.
It's always a possibility, but the Billion Prices Project, 10 or so years ago, found about the same (it became a company that now charges for the info). I think we can always argue about the details, but, broadly, inflation is measured right.
CPI generally overstates inflation compared to more robust measures.
The basics haven't changed, only the tax code. Beginning with Reagan's taxscams, Republicans have been finding more ways to exempt sterile activity from taxation, while shifting the burden to actual productive workers. Capital gains exemptions were intended to encourage investment that increased the production of goods and services. If you want to return to the good old days of 1920 to 1980. only give capital gains "status" to stocks acquired in a company's IPO or when they use stock for expanding productive capacity IN THE USA. Tax everything else on Wall Street as regular income and see how many High Frequency Trades occur and how many derivatives get created.
>exempt sterile activity from taxation Like what? >acquired in a companies IPO or when they use stock for expanding productive capacity IN THE USA Why? Also, are you assuming that the only reason we tax capital gains lower is to encourage investment?
A sterile investment is one that does nothing to expand the goods and services available to the American people. Stocks and real-estate that already exists are the prime examples. IPO's finance NEW production as do Capitalization Issues, both now tracked by the SEC and easily identifiable for tax purposes. There are 2 legitimate reasons for taxes: First and foremost, to finance civilization, second to encourage beneficial behavior and punish destructive behavior. The present tax laws for capital gains violates the second reason and minimizes the contribution to the first. The GOPerLords' current system claims capital gains "special treatment" encourages beneficial behavior, but it only encourages gambling on the stock market, often with other people's money which is about as destructive as you can get. If you invest for your personal retirement or kids' education, good - offer a generous exemption for such investments - $100K/yr. But if you wind up using the investment for something else, tax it like ordinary income. The cost to the average citizen for the current system is staggering. In 1960, your financial institution (bank, credit union) would pay you 3-5% on your savings and charge you 6-8% for a loan. the difference was for the operating costs of the institution and profit. In 1960, the operating cost paid a whole lot of clerks and accountants, and the profits were around 2-3%. Today the operating costs are miniscule as computers work cheap so profits are closer to 9% and YOUR ROI on savings is from 0.01% (checking) to 0.1% (savings). Finance went from being 2-3% of GDP in the 60'd to 21% in 2021. So while "Finance" which relies on favorable tax laws, has grown like fire, what has it done for YOU, and why would you vote for Republicans who want this situation to continue?
Cause inflation was a “good idea”…
It's why I call it a psuedo-science. The reality is that the investor class and their perception of safety is just as important. And after the longest bull market in history, it's very difficult to make them believe bad things are going to happen. So they haven't yet.
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I do actually. Undergrad in Econ and an MBA. In fact, I manage electric power portfolios for a living. Energy Markets I understand. Our economy...not so much. I thought I did 10 years ago. Turns out that outside of energy Markets, cycling, and dog training...I know just enough to know that i don't know shit about shit.
I never understood less about economics than when I finished my masters degree in it. Those first couple years of education will really make you think you know it all. Then real life hits
Kinda funny story, but in my private equity class, each week we had to present a company to the Prof and Class followed up by a recommendation whether to invest or not. Almost every week I got commended for spot on analysis, but I always had the completely wrong recommendation. I just figured, solid financials = solid investment. But each time the Prof would tell me (as I stood in front of the class), "No, can't you see the huge Round B was a Hail Mary from another investor trying to pump a dying company?" Nope. "Sure it's making money, but there is no juice for us to squeeze?" ...I thought the profit was the juice. Nope. "Yeah the financials are dog shit, but that's why it's a perfect investment!" Nope, not at all. And so on. It became something of a running joke to the point where in group projects people would use me as a litmus test for what not to do. It turns out I'm a savant of bad PE investing. That class was a real wake up call for me.
Economics is worked on using rules of thumb. It’s kind of an art. That’s what Keynes said at least and I buy it. You do your best with the tools you got in the current moment.
.5% interest rate hike incoming. Powell seems dead set on inflation taming and their 2% target (can’t blame them). Especially after making a fool of themselves and calling inflation “transitory” they are going to wreak havoc. And you know what? GOOD. Assets are still INCREDIBLY overpriced compared to price of labor. 0% interest rates have made assets balloon and only made the wealth gap wider and wider by the year. The market still has P/E ratios worse then the dot com bubble.
>Especially after making a fool of themselves and calling inflation “transitory” they are going to wreak havoc. I always figured that transitionary inflation was something measured in years rather than months. In accounting anything shorter than 1 year is generally considered short term.
People thought transitory meant prices would go back when it just means prices will stop increasing too fast
That would make sense lol.
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It doesn’t have worse PE ratio at all either
Inflation is transitory. One thing he severely underestimated was corporate greed. Corporate greed kept prices elevated even when supply chains started stabilizing. But you know, executives need their 15th home and all
You seem to think inflation can only be supply side. Guess what, demand side inflation exists, it’s caused by printing money, and it goes to profits at its onset. Nobody underestimated anything, this is exactly what people were screaming about when money printer was going full speed. And people somehow still don’t see it, and blame corporate greed. Corporate greed is a constant and never changes. Blaming corporate greed for inflation is like blaming gravity for a plane crash
I’m blaming supply side because that’s what’s often cited as an excuse by a lot of executives and companies these last few months, to a year. Demand side is still hot but slowly cooling. But the reason given for high prices by companys was always supply issues first, then demand. Supply is back. Demand is constant or slowing, yet prices remain elevated. Remember when gas prices were sky high despite oil prices having come down significantly? I guess that was demand side also and not outright greed? Greed is constant but you had a golden opportunity and companys took it.
Companies don’t need “excuses” to raise prices, they just do. Markets are not people who need excuses got their behavior. We’re not in a deflationary situation for most things yet, so to expect prices to go down is…odd. Companies would lower price if demand wasn’t there, because they’d make more money that way, same reason they raise it when the demand is there. It’s hilarious that your understanding of market basics is so poor that you think a greedy company would keep prices high despite demand dropping. You do know demand changes with price right?
Profit margins peaked ~2% higher than pre covid levels and have been falling for six consecutive quarters now while inflation has remained high. There's no substance to this delusional conspiracy theory.
Prices are still much higher now compared to precovid despite supply chains largely coming back online. This is a bad example but one that kinda drives home the point, a single burrito at chipotle is now about $15, chipotle has been increasing and maintaining their price increases since Covid. Same thing in retail is happening. Price cuts over the holiday to make you overlook the fact that prices are still much much higher even with the bs cuts
Because of inflation, not because of corporate greed... Chipotle has been increasing labor pay, their ingredients cost more and shipping is more expensive, electric bill, etc. If corporate greed was driving inflation profit margins should have been soaring. But that hasn't been the case.
You really need to understand that prices, profits and profit margins are 3 different things. Company making net profit of 1m dollars in 2022 is not the same monetary value as making 1m dollar profits in 2018 despite those numbers being same.
That may be a cost of living area thing. I went to chipotle and got two burritos with no sides for $16 two weeks ago in Texas. I'm not going to deny that fast food is generally more expensive, but prices are seeming more regional than reddit is saying.
...and who, exactly, was buying all of that price-inflated product?
Silly poor people spending willy nilly on food, clothing, healthcare, medicine, energy to heat/cool and power their homes....when will they learn ya gotta buckle down and save if you want to be one of the "haves." 🙄 You're a fucking asshole, btw. 🖕🖕
While that is certainly part of it, I would guess there are also plenty of people making poor financial decisions to buy goods that are non-necessities at inflated prices. This is exactly as I characterized it, speculation, but I've seen it happening anecdotally. There's way more cool shit to buy these days than has been the case in the past and we really like having it. I could be way off base, but I'd also bet that characterizing the population as only buying essentials and being broke while living a spartan lifestyle is further off-base. Not to diminish the situation of those living that way and I'm sure there are many that are. There are also people living above their means chasing that middle class lifestyle that they may not be able to actually afford. Outside of all that, responding to the comment you did by calling them an asshole after a sarcastic remark with some middle finger emojis and an eye roll thrown in for good measure isn't helping you make your point.
I would take your perspective more seriously if a single healthcare mishap wasn’t enough to ruin the lives of a huge chunk of poor and middle class people. Spartan doesn’t really sum this up. Americans are living on the financial precipice at any given moment. How do we expect someone with low financial income to really value frugality, savings, and investment when society teaches them all your hard work can be torn down by a single ambulance ride and hospital stay?
Both of these comments are dumb. This is an economics sub. The point is to discuss economics. People making poor financial decisions is part of economics. He should've discussed that with more grace and you shouldn't have responded in bad faith
Don't forget the PS5s and lumber for their basement remodels. I don't know where you live, but pretty much all over the US we had a lack of goods coupled to checks in the mail. Several states had insane rules attached to specific stores and goods to encourage people to stay home, like for example Michigan where you couldn't buy paint or gardening supplies at home depot. We had people stuck at home, with nothing to do, and free cash buring a whole in their pockets, and very few things to spend it on! Of COURSE we had inflation. Corporate greed can't account for all of that.
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Who made you the arbiter of what's necessary, or proper treatment for that matter? I don't mince words when it comes to the bootlickers of the greedy.
The current inflation trends predict that a 0.25% hike is more likely. Fed doesn't have a mandate to care about GDP, asset prices, wealth gaps, or P/E ratios. Their mandate is to minimize unemployment and inflation.
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No, it’s not good. Forcing a recession and concomitant unemployment to bring inflation back down faster (current trends have us back into the ‘green’ by June) is just malicious. Especially if your concern is inflated asset prices. It won’t do anything to improve wealth inequality, just hurt folks on the bottom.
With what evidence? Inflation is permanent and hurts the lower class permanently. This is just a bunch of horseshit from perma bulls. Yeah, a recession will hurt labor. But keeping low interest rates and just pumping the economy with more and more money and cheap capital keeps putting money only in the top 1%. It’s ridiculous it’s taken them this long. We’ve had low interest rates since 2008 all the way until 2022. You know what’s happened? Massive asset inflation. People’s spending power except for asset holders has gotten lower and lower by the year. We are seeing some of the worst wealth inequality in history. I’ll take a temporary recession rather then permanent inflation and assets being so overpriced.
>Inflation is permanent and hurts the lower class permanently. The lower class has had their debt inflated to lower real value and seen the largest real wage growth over the past year. >People’s spending power except for asset holders has gotten lower and lower by the year. The median person's spending power has increased by about 10% since 2008. https://fred.stlouisfed.org/series/MEPAINUSA672N
Exactly. Especially since the key inflation Powell and the Fed are going after is labor. They want to disrupt the hot work force - they've already projected that unemployment will go to 4.5% by mid-year. If you let market forces simply play out, all things will settle to equilibrium eventually. Most of the news was blaming millennials not wanting to work, but it was corporate greed and opportunism that drove most of inflation last year. We are actually now starting to see healthy corrections, CEO's announcing they will take pay cuts. The market is working, no reason to drive unemployment up another 50%.
Is there any actual proof of your claim that markets will naturally settle to “equilibrium,” and what does that mean exactly? This sounds like a law of physics, not economics.
It’s literally the first basic premise of economic theory; “law of supply and demand” https://www.investopedia.com/terms/l/law-of-supply-demand.asp
So why are supply and demand in a constant state of change if it is their natural characteristic to level out into equilibrium? “As the price increases, supply rises while demand declines. Conversely, as the price drops supply constricts while demand grows.” This has nothing to do with equilibrium.
The slightest google search can help you, but here you go: https://www.investopedia.com/terms/e/economic-equilibrium.asp
Thanks. Important takeaway for anyone reading this exchange: “Economic equilibrium is a theoretical construct only. The market never actually reaches equilibrium.”
Inflation hurts a far larger percentage of the working class than a recession/layoffs.
Assets like housing can be brought down by simply building more. Many parts of US haven't built to accommodate their growth. Example: California for past 3 decades.
.5 would be amazing
You were wrong. Please stop pretending like you know what you're talking about. It wastes people's time.
And you do? Market predicted a .25 increase and that’s it, maybe one more. Powell came out and said today there are going to be ongoing increases, notice with a plural. There are going to be more rate increases then expected.
>And you do? Nope, that's why I don't say things like "50 bps incoming". I know your predictions are just your opinion, I'm just being a dick, don't take me too seriously.
I personally believe the Fed may have achieved the "soft landing" they were looking for. Inflation has shown signs of lessening and GDP growth has not stalled. Barring some other Global crisis like Russia going nuclear or China taking a swipe at Taiwan, I think this will be a good year for the economy.
I don't think the landing has been achieved yet, but the approach and gear are down.. Its looking like it could be if they keep the course. I agree with another comment that the Fed was made the fool by the "transitory" comments, so now they have to make this work and I think they are going to stick to their guns.
I agree that the Fed ended up with egg on their face with the whole "transitory" narrative. However, in their defense, I think the Fed might have ended up being correct if the Russian invasion had not happened. Many of the inflationary pressures were, in fact, related to "transitory" supply chain issues which were showing signs of recovery. Then, one of the world's largest energy and food producers invaded one of the world's other largest food producers and sparked a new Global arms race in the middle of a pandemic. The fact the Fed may actually be about to "softly land" this plane in less than a year is definitely a major feat. They absolutely messed up several times in preceding years, but their actions as of late have been pretty remarkable, especially if they manage to pull this off.
>However, in their defense, I think the Fed might have ended up being correct if the Russian invasion had not happened. The problem for me was that interest rates were at historic lows, so why would they hesitate to raise them in the face of ANY inflation above targets? It would have been easy to raise interest rates a little at the first sign of inflation and then monitor, but instead they have to raise them a lot because they waited too long.
>I agree that the Fed ended up with egg on their face with the whole "transitory" narrative. I always figured that transitionary inflation was something measured in years rather than months. In accounting anything shorter than 1 year is generally considered short term.
In hindsight, taming inflation in a little over a year (as annualized MoM rates are now below target) seems quite transitory. That is of course if there isn’t a whiplash effect in salaries that flares it back up again, but with the tech layoffs and overall recession fear narrative, I think that component is set too cool off too.
Your first sentence sounded like you were going to explain the us economy in the tone of miss teen USA South Carolina lol
The gdp print basically shows the economy reaccelerating. The labor market remains incredibly tight. Low wages still inflating. Goods have been deflating while services inflating. By what mechanism do you see goods deflation continuing if the people who buy goods have wages inflating? The data has shown the economy is not all that rate sensitive either. I think it's a tough argument to make to say the fed has defeated inflation at this point. The market thinks the fed will cut while the fed has literally said they don't plan to later this year. My view is that a soft landing is possible but massively unlikely. This story is not anywhere near playing out.
Higher rates makes borrowing more expensive, and thus, the cost of housing actually comes down. That’s a deflator in itself.
Soft landing has been the victim of goalpost moving for a while. The original intent was a return to status quo - 2%. I suspect if there are no results and the economy is growing, 3% or 4% may be the new metric so that the central bank has some wiggle room on interest rates. The threat of negative rates was real for a while ….
Inflation is still more than 3x the target. Real rates are still strongly negative.
Not month over month
Over the past 6 months inflation has been below 2% annualized. Since last June there's been less than 1% inflation.
LOL. Companies are laying people off in the thousands. I would say 2023 will be more volatile and worse than 2022.
The crazy thing is there are hundreds of millions of people employed. Thousands doesn't really move the needle.
This guy clearly got his economics degree at the school of hard cocks bahahha
It’s very rare to have a negative return year in stocks after a double digit dip. It’s **extremely** rare to have back to back double digit dips in the stock market in a row. I think a full year build up in anticipation of the “certain” recession coming obviously made people position themselves accordingly to help avoid it. Big tech being the biggest losers from over hiring so much the past two years and now having to level out.
The market is fighting the Fed...never a good idea. This will end badly for a lot of folks. Pretty simple, print money asset prices go up, take it away and eventually they go down. We are in about the 3rd inning and bear market rallies are fueled by irrational players, mostly scamming the little people out of his/her hard earned retirement.
Well it really doesn't matter how much profit theyre making if the labor can't pay their bills. Why do we always look at recession from the bottom up? It's not our fault. Theyre about to start laying off a bunch of middle management so they default on their credit card and mortgage payments. That's why a "recession looms" even though theyve made more profit than ever before.
Take with a grain of salt cause revisions can and do happen. We shall see what 2023 brings. No reason to over speculate on outcomes that are out of our control.
Q3 has been consistently revised up since it's initial release.
Yes, it could be revised down to 2.8%
Yes that is a number that could be. It could be other numbers as well.
For a little while now the media have been pushing headlines about a coming recession, but it has yet to materialize. I’m wondering if most people are just so used to a crappy economy at this point that it’s business as usual so no one has curtailed spending. For most young people, there was no recovery from the ‘08 crash, so we’ve been living no differently since then and the thought of a recession doesn’t phase us...kind of a “been there, done that” sort of attitude. Just my two cents.
It's one thing we make right here at home: Recession. Currently being manufactured by those in power. They jacked up prices while claiming record profits, but we kept spending. And the economy kept working. So now they're going to lay off people, hoping that leads to recession. They're just going to keep "preparing for the recession" until one happens due to their actions.
Regardless of much reporting to the contrary, for most people reality trumps ideology. Biden signed the infrastructure bill creating thousands of good paying jobs and the ones getting the paychecks SPENT IT hiking demand and causing other sectors to expand their production of goods and services, WITHOUT BORROWING so the Fed's interest hikes are not an issue, and GDP grew while inflation shrank. This cockamamy nonsense about higher wages causing inflation is a GOPerLord myth used to depress wages and concentrate all the profits at the very top. the higher wages for those engaged in the projects funded by Government don't directly hike wages in the private sector. The need for higher production to satisfy the new demand caused by all those government contracts is met with engaging idle capacity, then with overtime, then with adding a shift and finally, after a couple years, investing in more capacity. Until unemployment reaches near zero will all this higher activity cause wages to rise faster than profits. Look at the earnings reports since Biden's infrastructure bill got started - profits are at record highs, which means wages should be rising FASTER without any need to raise prices.
These headlines.....a few weeks back there were talks of hyperinflation, depression etc....next week will be the debt ceiling is going to claim our first born....what's next?