A Recession on the Way?

We don't have staff who enable and actively encourage harrassment and bullying of certain posters. That's also a plus.

It was ridiculous that at one point, the longest RR thread involved a mod jumping into the frey of a goddamn breakup that most of us wouldn't have known or cared about before she did Eccentrics dirty work for him. And that was on the more tame end of what was considered acceptable here.

Both those were before my time. But, agree that ... some mods, one in particular, very much liked to stir the pot and actively protected assholes.

The problem, if there is one, is the diseased thinking that insists everyone MUST be either "conservative" or "liberal."

That's why I said most were "center". But, if you don't like that word, then most posters here do not conform to left wing idealism OR right wing idealism.

Not inherently, no.

And the hits just keep on coming...

https://www.axios.com/2022/07/13/june-cpi-report-inflation-fed-biden

Clearly this is Joe Biden's fault.

And also, Joe Biden is the president of the United Kingdom.

And France.

And Germany.

And New Zealand.

And Sweden.

He's a powerful man, that one.

well, there's the diseased thought that one is somehow uniquely beyond that.
especially when 95% of his opinings clearly fall to one side of that line despite that self perception.

95% of your chosen, curated perceptions, maybe. That's your problem.

wtf is "curated perceptions" supposed to mean, anyways?

Definition of curated


: carefully chosen and thoughtfully organized or presented


yeah, I supposed compared to infantile reactions you're most noted for, most of my positions have been arrived at with a modicum of critical thought.

To be fair, UA has transcended the conservative/liberal duality, and is full on fascist.

with all the word salads, I wonder if he's a vegetarian?

Based on what? My rejection of government interference with individual free will? Yeah, that checks out.

Not everything is black or white. and many people have different opinions as to how problems should be resolved. When simplifying differences politically, we (people) generally group them into two categories - conservative, meaning traditional responses and resolutions - or liberal, meaning lets try to find a new, possibly better way.

Neither side is always correct or always wrong.

Putting these things in buckets helps to identify things that are similar and things that are different.

Putting someone in one category or another is not bad. It just is. it is how humans deal with a lot of things - ideas or solutions. Hell, people have to categorize fucking nails. Because there are so many different kinds of nails. It's the same with people and ideas.

Just because someone's ideals falls into a particular category doesn't mean EVERY idea that person has falls into that category, nor does it mean that person must stay in that category.

I think, it isn't categories you dislike so much as it is that other posters here fixate on one response and attempt to carry that over to other issues. THAT is what needs to be railed against.

It's not about different categories, it's about listening to other people's opinions.

it's so adorable that everything you don't like is "government interfering with 'individual' (read: you) free will".

even more so that you'd happily hand over the reins to whatever despots can take them and really fuck with your freedom to be a fucktard.

You sure seem to love the freewheeling exercise of police power when it's directed at anyone but you.

So the Fed raised rates 75 basis points today. I gave this whole thing considerable thought after seeing inflation phrased as "too much demand chasing too few goods", which I instinctively disagreed with, and I tried to figure out why. TLDR: I think despite the inflation, raising interest rates seems to me like the wrong move here, but the Fed probably has more info than I do.

Inflation is less "too much demand chasing too little supply" than "too large a flow of money chasing too little flow of supply at the prices goods were offered at, causing prices to rise". I think that's important to distinguish because it lets you separate out all the components more neatly: there's the flow of goods (itself a quantity (capital stock) and production velocity), the quantity of money (and changes thereto) and the velocity of money. There's also a politico-spatial component, in that goods in in Russia and Ukraine still exist but are no longer readily transportable to (in this case) the US, but for our purposes we can consider them to be unavailable after previously having been available. I don't like the "too much demand chasing supply" framing because demand is not what gets traded for goods, money is.

So let's take a simplified look at what happens before and in a "typical" recession. Let's say 1991 or 2001. Low interest rates led to lots of lending (which increased the money quantity because fractional reserve banking). That lent money was spent on wages and capital goods in dubious industries (increase in velocity of money). Unemployment falls. But the wage-earners were spending that money on previously existing goods and services rather than the new goods and services. Prices in those goods and services rose (inflation!), the Fed raised interest rates, deposits looks better than risky investments. The quantity of money falls as loans are not rolled over. Businesses with marginal business plans being held up by debt and equity financing before start to go bust as the market realizes they were actually worthless. Unemployment rises as workers are laid off, the velocity of money falls, and inflation is tamed. (In 2001, people start finding that housing is the highest-returning asset they can put money into, the seeds of the next bubble are planted, but that's not really relevant except to demonstrate the cyclical nature of the business cycle.)

The key in this story is that everything that really changed was a monetary phenomenon. Money goes up, high-utility goods and services got more expensive. Money goes down, the supply of high-utility goods and services was largely unchanged, except insofar as the higher prices encouraged more production of those goods and services.

As a short long aside, let's take a quick look at the housing market crash. Similar story at the beginning, except that it's housing debt that was where all the extra money was parked, instead of in new business ventures. Housing, unlike internet company products in 2001, is actually valuable! But it was housing debt that was in high demand as an investment for its ultra-stable returns underlain by the ability of ordinary Americans to pay their mortgages. Except that, well, that was illusory (and that was the banks' and ratings companies' faults for fraudulently producing and marking inferior products as superior to satisfy that demand). Bad debts needed to be written off. But the market was leveraged to such a degree that the quantity of money didn't just fall when that happened, it cratered like the Chixulub asteroid, doing what the lowered quantity of money did in 2001. Only this time it wasn't only to marginal businesses, but also to less marginal businesses that relied on short-term loans for ordinary operation, and even fully cash-flow positive business that didn't run on credit as everyone earlier in this sentence was laid off and the velocity of money dropped further and further. But if you had cash (and a secure income) in 2008-10, it was great! Housing was actually cheaper than it had been before because housing is a good with high utility at any time, and whatever goods-producing businesses were left had to lower their prices to keep their customers. In reaction, the Fed and federal government took various measures to increase both the velocity and quantity of money. Stimulus (velocity), zeroed interest rates (quantity), employment programs (velocity), Quantitative Easing I and II ad infinitum (quantity), bailouts (stop the velocity from falling further), TARP (stop the quantity from falling further), etc. Being not entirely unconcerned with the vast quantities of money that were being printed (because if velocity actually did pick up and quickly, the Fed also did something unheard of: they started paying interest on banks' deposits with the Fed. The message, AIUI in retrospect, was, "hey, here's trillions of dollars to keep yourselves and your good customers solvent, but if you're thinking of making more risky loans with all that money, we'll pay you not to do that, and we'll pay you more (0.25%) than the interbank overnight (FedFunds) rate (0%) so you don't get any ideas about helping out any of your fellow banks who aren't taking this message seriously too." Whether that was necessary or not is debatable, but either the message was received loud and clear or the banks were very gun shy after the crash and didn't want to lend to anyone they weren't absolutely sure was good for it anyway, and both the quantity of money available to ordinary people (as opposed to in reserve at the Fed) was low and velocity of that money was slow for years, and we got the L-shaped recovery.

Overall, almost everything before and in the housing crash was a monetary phenomenon except for a minor overproduction of housing. The capital stock didn't change. The housing stock went up only a little bit. The flow of goods didn't really change until ordinary businesses were disrupted by the cratering quantity and then velocity of money.

Contrast with the late 70s or today. Interest rates had been low for a while (much longer and lower today). Yes, there's probably a bubble somewhere in the economy, but it hasn't popped. Instead we have an actual supply shock in (highly) useful goods. Oil production was cut in the 70s, and Ukraine and Russia are at war while China is locked down today. Supply chains have been disrupted for a myriad of reasons. So what's the look like under this framework? Well, it looks like both capital stock has been decreased (and in the case of Ukraine, literally destroyed), and the physical flow of goods (in our case, imports) has been decreased by a fair bit. This is not a monetary phenomenon at all! We (global) are simply less wealthy and we (globally also but especially in the US) are less able to supply goods to consumers than before. Fewer goods command higher prices. This is not the same inflation as 1991 or 2001 or 2009. Which means that decreasing the quantity or velocity of money, while it will bring prices down, is going to cause a recession and unemployment, and then we have stagflation, because people still need to eat and buy staples, staples which we are still not producing. Under this interpretation, the 80-83 recession ended through a combination of the economy finishing adjusting to the lowered oil production (through gains in efficiency), domestic oil production increasing as imports picked back up again... and there being no one left to lay off.

So this is not a money supply problem. This is a goods supply problem. We need goods supply solutions. Framed in this way, causing unemployment seems like exactly the wrong thing to do. The price signals that should tell entrepreneurs "hey, focus on domestic production of goods and supply chain-hardening businesses pronto, there's a lot of profit to be made," will be distorted by the decreased money quantity (and velocity, if unemployment goes up). So what gives? Why is the Fed raising interest rates and talking about raising interest rates even more?

Options:

• The Fed is raising interest rates because they don't believe that the price signals can work in time to increase capital stock and goods production domestically and give investors a return. The precise definition of "in time" is the big unknown in this case. It could be political (eg, before the midterms). It could be they think that the supply shock will end before investment in domestic goods production and hardened supply chains starts paying off, which will probably lead to lots of abandoned projects as the world returns to the old normal; they don't want to create a domestic-goods-production-and-hardened-supply-chains bubble that will pop. Maybe they believe a universal betacoronavirus or sarbecovirus vaccine is on a short horizon and will let us get back to our just-in-time supply chains a lot sooner than it looks like right now.

• The Fed is raising interest rates in order to cause unemployment to lower the cost of labor to make it easier for entrepreneurs to do supply chain-hardening and increase domestic goods production.

• The Fed is raising interest rates because the Fed is expected to raise interest rates when inflation occurs. A significant part of money supply management is expectations management (for a rather dramatic take on this, see https://www.themoneyillusion.com/monetary-policy-isnt-what-you-think-it-is/). The whole thing is performative to try to deflate whatever the existing bubble is before it eats up more investment so the economy can better weather the supply shock.

• The Fed is raising interest rates because they don't understand or don't agree that this is fundamentally a goods supply problem.

None of these options are mutually exclusive. It could be a mix of any or all of them. Personally, I think they're wrong to be doing it. They should let the price signals through. So what should we do about it instead of raising interest rates? Well, that's not going to be monetary policy. It's going to be infrastructure: port capacity improvements, finding and eliminating regulatory bottlenecks in supply chains, building more housing, encouraging more domestic production of goods. Typical government policy around that would be tariffs, which I don't support and seem to be making things worse anyway. But certainly using the bully pulpit to articulate the new reality where local is important, noting that the situation is not going to improve for a long time, to signal that investors in local goods production will actually make their money back. Maybe even get some token legislation to support it, a signal that investment in this area won't turn out to be pointless in a few years.

Or maybe the lack of such signals out of the administration is itself a signal that the first option is the actual answer. Are they communicating with the Fed about this sort of thing, or does that look too much like presidential interference with the Federal Reserve, and they avoid doing that for optics reasons? In which case, lack of movement in that direction from the administration may only signal its own confusion.

It's hard to say, and I suspect only the FOMC knows for sure why they're raising rates. But those seem like the options to me. If I had to guess, it's 45% option 3, 35% option 1, a 15% hedge in option 2, and 5% option 4. Complex factors are difficult when the resulting actions have to be linear, but I just don't know.

To the extent that Fed interest rate hikes may be indicated, if they peak at 3.5% this year (the current expectation), that's still low by historical standards. They likely agree that aggressive rate hikes are not the solution.

Wasn't that the whole idea behind "Make America Great Again", bringing back jobs to the US., focusing on domestic goods, strengthening our farmlands, bringing manufacturing jobs back, showing the middle finger to China, as you say, "hey, focus on domestic production of goods and supply chain-hardening businesses pronto, there's a lot of profit to be made" And didn't the Democrats poo poo all of that because "Orange Man Bad, mmmm, rrrr!" I'm not saying Trump had it all figured out, but a lot of people have had this general notion floating around in our heads for a long time now. Didn't Trump also want to renegotiate NAFTA or scrap it all together because I remember Ross Perot warning about how much of a shit deal it was when I was just entering Jr. High. Democrats poo pooed that as well. It's bad domestic economic policy and bad monetary policy for the better part of my lifetime that's got us here and this time, it's probably going to be worse.

Shockingly, John Oliver did a good show on inflation the other day that did blame both and pointed it out that Biden is stupid to blame inflation on one thing (greedy corporations) and gas prices on one thing (Putin). He didn't quite go as far as blaming the Fed and government intervention like I would, but good on him. I also don't know about his solution.

I think we a global recession is on the way and so does the IMF.

More.
https://www.reuters.com/business/im...igh-inflation-threatens-recession-2022-07-26/

Sir this is a Wendy's drive through.

How much of that was actually accomplished under the Trump administration?

Maybe Trump was ahead of the curb in 2016, wanting to put the heat on China.

But international free trade and globalization is still a good thing. We just need to do more business with reliable, peace-loving democracies, and less with lawless, land-hungry autocracies.

This week Trump spoke at a summit in DC. He decried NAFTA as the worst thing ever (classic Trumpian superlative) and the USMCA as the best ever. Now what's the major difference between the two agreements, other than Trump's involvement with the latter?

There is no consistency or reliability coming from him on these matters.

No, "Make America Great Again" was a slogan, not a platform. To any extent that he had a policy focus in this area, it was on trade deficits. But trade deficits are not the problem, not in the petrodollar system. And despite his 7 Infrastructure Weeks (all but the first coming on the heels of a scandal, no doubt coincidentally ), I don't think any infrastructure bills were written, and none were passed. More to the point, there was not a supply shock going on. And when something -- a pandemic -- did threaten to cause one, he took the playbook that could have mitigated it and threw it away. And the fact is, without international supply shocks, globalization is the better policy. There was nothing at all done about hardening supply chains. All of the manufacturing deals were temporary or illusory, intended for photo-ops, not long-term thinking.

He did scrap NAFTA. And we got the USMCA out of it, which created the formula shortage because it all but banned formula imports from Canada. Yay more supply chain fragility! This is not the work of a man who had foresight; this is the work of a man who got a lot of checks from dairy plant owners.

Definitely one of his better episodes this year. I don't think the Fed is to blame here, for once. The stimulus was probably slightly inflationary in the long run, but not at the time. I don't think there's much question that it stopped the velocity of money from going to ~0.

Yeah I think that's pretty obvious. Less stuff is being made and consumed. Capital is being destroyed or made inaccessible. I don't see how that couldn't make for a recession.

Because I am lazy I am just gonna quote myself from two years ago even though it doesn’t exactly align. Hopefully the point still comes across:

Okay, this sounds crazy, but hear me out.

What if the US were to spend 8 years working with the other 11 largest non-China economies in Asia and the west coast of Americas to create a deep economic/trade/geo political partnership that would then force China to either adopt international norms or be frozen out of trade with these nations?

We could call it the Across Big-ocean Alliance or something.

Yay! More binding rulings from unelected people who are in no way accountable to us.

Given that you're poor you more than anyone need cheap goods from foreign trade partners

Made in America is above your pay grade bud

Maybe if I were as much of a voracious consumer of cheap junk as everyone else. I'm willing to save up for a better quality version of those few things I do need, if it means depriving hostile nations and the debt industry of a few bucks.

Yet Brandon keeps denying these facts.

I see some people don’t like facts and would rather adhere to political ideology. I call that science deniers.

What credibility do you engender by invoking 'Brandon' save for a 'go fuck yourself'?