“A Mild Recession”
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And the parties have been irresponsible because we the voters wanted that.
https://www.washingtonpost.com/business/energy/the-us-is-dep...
That simply isn't true at all. The only thing of consequence that Biden did was prevent Albertan oil from more easily being exported to Latin America and Europe by cancelling the keystone pipeline expansion. At the same time, oil producing states were complaining that oil prices were so low that it didn't make sense to invest in production. Now that demand has picked up and Russian oil is off the table, prices are going up worldwide, not just in the USA. The USA's production hasn't changed much since the Trump administration, which hardly changed much since the Obama administration (which has been going down because oil-shale extraction costs couldn't be covered by the price of oil for much of the time).
Democrats are blamed when oil is too cheap (because red states depend on oil production jobs), they are also blamed when the price of oil is too high. I'm just going to buy an EV and ignore the whole issue, it isn't worth my time to worry about the price of gas when we don't really have to anymore.
But you can't get away from it because everything that you use that gets transported by someone is getting more expensive.
However, the expected but worst thing that could happen now is oil crashes down because of a recession (demand playing most of the role in oil's price) and labor becomes cheap again.
Much of which was growth in name only and will prove to be investments in unproductive assets that never would have made it out of the brainstorming session if there was an actual opportunity cost of capital.
Until we can collectively recognize this and address the staggering socioeconomic inequality in our society, we're going to keep seeing the economy limp and sputter frequently. A healthy economy needs its working class—the vast majority of people in it—to overall have healthy economic situations, enough for at least some disposable income on a regular basis on top of being able to comfortably pay for basic necessities and save a bit for the future. Ideally, it needs that to be the minimum condition, so that everyone in the economy has some genuine discretionary spending capability.
It's a great exercise to research the effects of this type thing historically.
https://www.cnbc.com/2017/08/09/the-happiest-countries-in-th...
The federal reserve has kept interest rates artificially low for the past few decades, to sell broken unpopular policies to the public (eg Iraq war), to enrich the financial industry, and to simulate growth.
The vibrance of capitalism relies on capital being distributed, so that it competes rather than acting uniformly. By flooding the market with newly created capital from a central source, the federal reserve has completely undermined capitalism and substituted it with the politics of who gets newly created money. One of the biggest recipients of new money has been the financial industry, which has even been whitewashed as some kind of neutral actor but is anything but. This is why more and more of people's every day lives have been financialized - made legible to the financial system and parceled out into monthly payments.
Not that I like it, but my understanding is the exact opposite.
Inflation is going up because workers are finally getting some of the economic gains. The wealthy can gain tremendous amounts of money on paper, but it doesn't impact inflation because they aren't spending it. For example, a trillionaire isn't buying a trillion dollars worth of of steak.
However, minor employment Improvement and salary means that there are tens of Millions of more people competing to buy steak in the supermarket, hence price inflation
I'm willing to believe part of the reason is higher wages, as it does seem that there have been some (fairly minor) real gains over the past several months.
But it's also quite clear that the increased oil prices are affecting the prices of goods and services across the board.
And I've seen a number of reports of companies posting record profits and raising prices—which indicates that they're not raising prices because they have to, but because "oh, it's inflation, we have no choice" is a convenient cover for them to increase their margins.
More importantly, the concern at hand is recessions, not inflation, and the comment I replied to was specifically noting the fact that there had been several significant recessions in recent years. It was the apparent fragility of our economy recently that I was attributing to the drastically increased income inequality, not inflation specifically.
You are thinking about this only from the profit side. The entire reason this can happen is because customers are willing and capable to pay more. Cost were never limiting the price because companies were making a profit before too!
If you are selling steak, you raise your prices until customers stop buying. You don't stop at X profit margin. Prices go up because customers are willing and able to spend more.
If you're saying they're using inflation as a cover and lying, I totally agree. But waiting for an excuse isn't what was stopping them before.
>More importantly, the concern at hand is recessions, not inflation
You can't separate the two. Recession is GDP loss after adjusting for inflation. The U.S. GDP without inflation is still increasing. Without inflation there would be no recession
The market generally factors in a lot of things, it's not looking at 1.5% rates, it's looking at what the fed has effectively committed itself to doing. It's looking at 3% rates by the end of the year.
Same result either way though.
For the past decade or so the modus operandi has been:
1. Print more money, give it to bureaucrats and corporations
2. Toss in some non-monetary issue that will piss of ~50% of the population, while making the other ~50% feel entitled.
3. Promise one half to serve their interests by punishing the other half.
4. Print more money, give more to bureaucrats and corporations.
5. Rinse and repeat.
It seemed to work for over a decade: people gave up dreams of retirement, property ownership, having children, we were headed straight for normalizing living with parents while eating factory-produced bug proteins. Thankfully, the black-swan COVID-19 happened, the money printer got too cocky and people finally started to notice a problem.
The quality of life will decrease in the short term. But once enough people admit it's a bigger problem than being offended by what somebody on the Internet said, there will be finally demand for competent politicians offering viable solutions.
Notice the Andrew Yang fans are oddly silent lately. Nobody cares to dig too deeply into the 'student loan forgiveness' issue, either.
Free money isn't really free.
However, I'm optimistic on the long term because I think only recessions can correct the (massive) mis-allocation of capital that we experienced the past decade due to ultra-low interest rates.
I have no debt, a fully paid off house, and plenty of cash which has left me feeling confident about any upcoming recession.
Could I get fired from my well-paying job tomorrow, the recession lasts for 5 years, and the food supply runs out so we all starve to death? Sure, but it’s probably not worth calling out.
I was in college during the 2008 recession and fully supporting myself. I was able to get by with less than I have now because I didn’t have a ton of debt.
Do I have sufficient funds to survive for a while in a typical recessionary environment? Yes. If the shit really hits the fan, markets crash to next to nothing, real estate craters, etc and this lasts for multiple years well yeah. I'm in trouble. But that'll be true of just about everyone and we're probably looking at general societal collapse at that point.
Just to give some examples of a recession being worse that one expects:
- I might need to sell my 4-bedroom house and move into a smaller house because I can't afford mortgage;
- I might need to skip vacations this year because I got a pay cut;
- I have to sell my car and use public transport because I need money and gas is too expensive anyway;
I made a comparison between 2007 and now, while you just stated ignorance of the past and made pessimistic assertions of my ability to estimate relative security.
Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
> Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
Yes
What part of my comment do you disagree with exactly? That people, in general, overestimate their financial security and capacity to overcome recessions?
> First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss.
Those predictions are not supported by the data, and are distinct from your description of them. I disagree with your implied statistics and sloppy use of words. I am skeptical that you can forecast the length of the recession, job loss, or changes in consumer behavior.
> I disagree with your implied statistics and sloppy use of words.
No problem if you disagree, it would be nice if you elaborate your point though. What exactly do you expect from a recession? What does your data say?
I'd also like to point out that Economics is not really an exact science, even with a ton of data at hand the predictions that economists make are wrong quite often. Specially during the past 2-3 years predictions have been quite bad - fiscal/monetary stimulus doesn't add much to inflation, if it does it will be transitory etc. That's one of the reasons we're in this mess.
so no statistics or experience
I hold the belief that the LONG term future will be good because capital will be allocated better.
Do not see the conflict between these 2 statements. Also I was 17 in 2007, not sure if it's called ignorance but I didn't understand much of the economic environment at the time.
On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever!
I think the mis-allocation is due to rates not rising fast enough after the crisis is over. Terrifyingly fast to drop and equally terrifying (in retrospect) how slow they rise.
Very few jobs are truly secure ever. Your company can avoid being impacted by the macroeconomic situation of a particular recession or financial crisis, but that doesn't mean you won't be fired or laid off or need to quit your job, then find a new one in a less than great job market.
I've been through layoffs at more economically sound companies where the leadership decided something had to be done to mollify shareholder anxiety about the larger economic situation. I've been through layoffs at companies where the writing was on the wall (especially in retrospect).
I worked with somebody who developed a major health problem during our time as coworkers. He had to quit because he couldn't do the work until that was squared away. It took him years to be well enough to work again, and by then he needed to live near family in a lower wage/higher cost of living area that still scrambled his financial plans.
Most of us have worked at a company where a new boss came in, and some people just didn't get along with them or didn't see eye-to-eye on whatever or otherwise couldn't work there anymore. Or where there's a reorg and suddenly the work isn't a match anymore.
Everyone should be prepared at any time. If fear of recession gets folks thinking about that, great. But they should do it regardless.
It's also worth bearing in mind that when unemployment is high, there are many companies that stop or slow hiring, sticking with current staff. Many fewer are hiring at all. If there is 10% unemployment, you'd expect the number of available jobs to shrink by much more than 10% vs full employment. Losing your job compounds because finding a new one at all or at least a new one that pays the same can be harder.
Predicting the future is always challenging. But preparing for a range of unknown outcomes is often doable.
Growth can continue indefinitely, but we will hit limiting factors relating to how we structured our economy.
Eventually we'll hit that limit [1] but the idea that its going to happen soon is undefended. The issue right now for growth is that we can't mine the earth's resources fast enough right not that we've used it up.
[1]: https://en.wikipedia.org/wiki/Heat_death_of_the_universe
Efficiency of markets is like the Law of Large Numbers. But it's possible to get n consecutive coin flips that come up heads.
Take physical wealth and move somewhere else if a really bad one happens.
Multiple times in history people who thought the banks couldn't fail saw they crashed hard.
Furthermore as other posters said, inflation can make you money worthless quickly.
If you want an emergency fund, and I mean societal collapse proof funds, get physical wealth and store it.
Silver and gold have been useful in times of war, people who lived through the bosnian genocide said they used physical wealth that was still useful to get necessities.
I am not trying to be a prepper nut, but its good to prepare somewhat for a bad recession or a problem with violence that could happen.
just get a little, a few bars, and you are set incase anything goes wrong.
It'll never go bad in value, it'll never be irretrievable due to financial problems, it'll never be destroyed by rot.
One concern with this recession is that there is a risk that low interest rates distorted prices in irrational ways. Historic examples from the communist block do not look kindly on rapid price reallocation. Nest eggs don’t last long in a market losing 25% YoY with 10% inflation.
Housing has become a dragon which either requires high inflation, government policy intervention, or a severe crash to correct.
We will have a decade or two of amazing growth.
People will forget basic economic principles again, raise taxes and regulations over spend like crazy and then it will fall apart again.
You don't need austerity, but you need to make sure there are returns on investment opposed to just throwing money at problems and seeing what sticks. Because unfortunately, money always sticks
I don't think the illusion of growth is a problem per se. Growth, or at least stability, could be achieved relatively straightforwardly, if only the underlying social dependency ratio weren't growing. It grows though, at least in developed countries, and to any moderately longtermist person this feels like an obvious bomb slowly ticking away, until no time is left anymore.
If no systemic fix is going to be implemented, some generations will end up holding the proverbial bag, and for now it seems that this burden will fall upon the millenials and zoomers when they hit retirement age. Especially the childless.
The market was expecting 75 basis points. That was the consensus.
When I see this kind of thing it does make me question the rest of the information points on the article that I am not as well informed on.
Also the war mongering of US is finally coming home to roost. Picking up fight with Russia and China while India doesn't care is the final slide for the American empire
This is a classic mistake people make when predicting the future: using historical prices.
Those days are over and will not come back for a loooong time. ex) Japan has not reached its 1989 peak and its nearly going into 40 years no sign of stopping.
Globalization is also come to an end and our economy built around cheap capital and Chinese labor is over.
This is the end of cheap goods, cheap travels, and the middle class. I do not want to be here when it gets bad. Just head over to r/vancouver to see people casually blaming their situation on immigration.
Of course it is possible after the fact to find collections of individual stocks that have outperformed the index fund. Trillions of dollars have been staked on trying to do so ahead of time, with little to no success.
Is it possible in the future that groups of funds will somehow perform worse than the individual stocks making up those groups? It's very hard to see how that could happen over any extended period of time.
"How could index funds crash, they correlate with the entire market!"
Well, then they crash by crashing the entire market. And once the market starts crashing and people gets worried about their investments and wants to cash out their index funds, it will continue to crash.
Just for context, while they have grown index funds only make up 10% of the market according to vanguard[1].
[1] https://www.vanguard.ca/documents/truth-about-indexing-en.pd...
I wonder if it'll make it more stable because the passive investors aren't as inclined to randomly shift money around or pull it out. Even if they are inclined to pull it out, does the behaviour of the money being pulled out look much different when looking at the market in aggregate? It stands to reason even active investors would be heavily invested in those exact same companies and would be deliberately pulling money out as well? It seems to me that all the investors investing in the average just means the market will continue to be average.
So, yes, passive investing helps stabilize the entire market to trade in tandem, but too much is a danger to the health & stability of our market and economy as it enables misallocation of capital.
Is it your assertion that without index funds this would be occurring? We just saw deliberate decisions to buy companies like TSLA and GME that stronly argue against that.
If anything it seems quite the opposite? Index fund investors know the market always goes back up on long enough time frame. Investors in actively managed funds have to continuously question whether their manager is incompetent.
And it's pretty clear that interest rates have been steadily falling for 40 years[1]. Arguably 500 years[2]. Is there temporary variation around the business cycle? Sure. But in the long-term it's extremely unlikely we return to the There's strong macro evidence that interest rates are heavily influenced by demographics[3]. And despite what happens this recession, the population isn't going to stop aging.
All of this to say that historical appeals to "normal" P/E ratios is extremely misguiding. We're probably never going back to a world where single digit P/E ratios are the long-term norm, because we're probably never going back to a world with 5% real interest rates are the norm.
[1]https://fred.stlouisfed.org/series/REAINTRATREARAT10Y [2]https://www.visualcapitalist.com/700-year-decline-of-interes... [3]https://www.frbsf.org/wp-content/uploads/sites/4/4-Thwaites-...
[1] - https://www.bankofengland.co.uk/-/media/boe/files/working-pa...