The U.S. economy's big problem? People forgot what 'normal' looks like (2023)
washingtonpost.com
washingtonpost.com
According to Redfin, the house we live in (purchased during the 2016 election) could no longer be purchased using an FHA loan, because the limits haven’t kept up with inflation. And even if you could swing the down payment, your monthly payments would be about triple what we pay now.
But yes, WaPo, the problem is that the economy is too good.
"The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it". —Jeff Bezos <https://sports.yahoo.com/amazon-ceo-jeff-bezos-explains-2123...>
Some of these problems are years, decades even in the making, structural even [5]. They will not be fixed overnight, nor was this administration the culprit. Some of these problems can’t be fixed because the electorate is…unsophisticated, to be polite.
[1] https://www.fanniemae.com/research-and-insights/perspectives...
[2] https://www.vox.com/2024/2/21/24078362/inflation-car-insuran...
[3] https://www.axios.com/2024/04/25/trump-biden-americans-illeg...
[4] https://www.bloomberg.com/news/articles/2024-03-05/us-immigr... | https://archive.today/eDWSt
[5] https://www.axios.com/2023/05/08/us-labor-shortage-older-wor...
I think rather than denying that Biden was the “culprit,” it would be fairer to point out that Trump started it. He was the one that printed trillions to send out Trump-bucks with his signature on them. It would behoove Biden to acknowledge this and turn it back around on Trump, instead of trying to gaslight people into thinking the economy is great. But the structural problem he faces is that his coalition is people who want the government to give them free stuff, and a critical mass of affluent people who only want higher taxes on people richer than them. It’s a coalition that cannot be maintained without deficit spending.
> The Fed resumed purchasing massive amounts of debt securities, a key tool it employed during the Great Recession. Responding to the acute dysfunction of the Treasury and mortgage-backed securities (MBS) markets after the outbreak of COVID-19, the Fed’s actions initially aimed to restore smooth functioning to these markets, which play a critical role in the flow of credit to the broader economy as benchmarks and sources of liquidity. On March 15, 2020, the Fed shifted the objective of QE to supporting the economy. It said that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities over “the coming months.” On March 23, 2020, it made the purchases open-ended, saying it would buy securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,” expanding the stated purpose of the bond buying to include bolstering the economy. In June 2020, the Fed set its rate of purchases to at least $80 billion a month in Treasuries and $40 billion in residential and commercial mortgage-backed securities until further notice. The Fed updated its guidance in December 2020 to indicate it would slow these purchases once the economy had made “substantial further progress” toward the Fed’s goals of maximum employment and price stability. In November 2021, judging that test had been met, the Fed began tapering its pace of asset purchases by $10 billion in Treasuries and $5 billion in MBS each month. At the subsequent FOMC meeting in December 2021, the Fed doubled its speed of tapering, reducing its bond purchases by $20 billion in Treasuries and $10 billion in MBS each month.
https://www.brookings.edu/articles/fed-response-to-covid19/
https://www.axios.com/2023/12/09/mortage-rates-housing-marke...
I don’t understand the resistance to acknowledging that inflation is the predictable effect of money printing. The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. It’s a textbook outcome from easily identifiable policy choices.
M1 didn't include savings accounts in December 2019 and it does now, that's the majority of M1 diff...
That makes me think your conclusions are based off talking-head points instead of first principles, as when your conclusion hinges on M1 changes, you'd think you'd do a few minutes searching what is M1...
Yep it was an accounting change.
Though the additional wave of stimmy checks plus continued buying of MBS during 2021 was definitely not good for inflation.
According to that source the accounting change is responsible for $11.4 trillion of the change. That means M1 really only went up from $4 trillion to $8.6 trillion in two years from February 2020 to June 2022. So we printed more money in two years of pandemic than in the previous twelve years of quantitative easing. How’s that still not the obvious culprit?
(I know the Fed is not under the direct control of the White House, but the change might've been made by decision-makers at the Fed whose sympathy with Biden overrode their commitment to impartially reporting monetary information to the public.)
"If you put money in a checking account, regulators make banks set aside a cushion as reserves in case they get into trouble. But if you put money into a savings account, regulators tell banks they don’t have to reserve anything. The catch is that it’s only considered a savings account if the consumer is allowed to make no more than six withdrawals per month.
It’s worked that way for years.
But then Covid hit, and regulators realized that having trillions of dollars in savings accounts with limited withdrawals was a burden as 22 million people lost their jobs.
So last April the Fed changed the rules and eliminated the six-withdrawal limit on savings accounts. It wrote:
The interim final rule allows depository institutions immediately to suspend enforcement of the six transfer limit and to allow their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent.
But it changed the relationship between M1 and M2.
Savings accounts are measured in M2 and left out of M1. But once the six-withdrawal rule was removed, every savings account suddenly became, in the eyes of regulators and people who make these charts, a checking account.
So M1 exploded higher. Not because the Fed printed a bunch of money, but because trillions of dollars in savings accounts were reclassified as checking accounts."
https://collabfund.com/blog/the-fed-isnt-printing-as-much-mo...
Because it only tells a fraction of the story, if any. Again: why didn’t inflation explode between 2008 and the pandemic when way, way more money was being printed into the economy by quantitative easing?
You hand waived it away as due to cheap labor/imports/whatever. Pandemic induced supply chain collapses, not money printing, had a massive amount to do with inflation going through the roof. Businesses realizing they can gouge consumers who have no real recourse did, too.
Why only point at the stimulus while ignoring other money printing activities and downplaying all the other contributors to inflation?
The very helpful correction in a sibling comment notes that the majority of the change ($11 trillion) was from an accounting change.
But even then, M1 money supply increased from $1.6 trillion to $4 trillion gradually from 2008 to 2020. It then increased from $4 trillion to (20-11.4 = 8.6 trillion) from February 2020 to June 2022. So that’s $2.4 trillion over 12 years due to QE, and $4.6 trillion over two years due to the pandemic response. How is that still not the obvious cause of the inflation?
There's no wide agreement that either MMT or Fiat currency is that predictable.
The case for MMT and "printing money" (right or wrong) is made in popular books such as Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...
and explored in documentaries such as Finding the Money (https://www.imdb.com/title/tt27513787/) and PIIGS (https://en.wikipedia.org/wiki/Piigs)
These may or may not convince you, but they might assist in understanding the opposing viewpoint.
What we’re seeing is what MMT would predict. We had essentially full employment in February 2020. Then we more than doubled the money supply, and didn’t raise taxes. We would expect to see massive inflation even under MMT.
We are all de facto MMT believers now, insofar as nobody is willing and able to balance the budget. That shows the policy failure of this administration. MMT would say that we need to raise taxes to take money out of the economy. We especially need to raise taxes on the upper middle class, who are responsible for the lion’s share of consumer spending. But Biden has stuck to this ridiculous $400,000 floor for raising taxes.
> But Biden has stuck to
My impression of the US system is there's an excess of players able to throw sticks in bicycle wheels and unbalance most plans and Biden (regardless of his age, cognitive slips, and US left or right party affiliation) appears to be one of the rare few who can manage to steer some bicycles through the chaos ..
I don't know enough of the gory details you have going on there, my first thought would be that he's not aiming higher as his political gut might be telling him it would never get anywhere if it did.
https://news.ycombinator.com/item?id=40250226 ("HN: An Oil Price-Fixing Conspiracy Caused 27% of All Inflation in 2021")
https://www.thebignewsletter.com/p/an-oil-price-fixing-consp... ("BIG by Matt Stoller: An Oil Price-Fixing Conspiracy Caused 27% of All Inflation Increases in 2021")
They should just stop writing about the employment and labour markets, it's embarrassing for them