Post by bjspokanimal on Mar 8, 2024 20:31:39 GMT -5
Many people blame Covid and the impacts of it's economic aftermath, and that's a
part of the truth.
Covid clobbered demand for goods and services on the one hand, and further clobbered
the businesses hurt by low demand by placing lock-down constraints on them. So when
covid subsided and people started buying goods and services again, the weak supply
chains needed to provide those goods and services resulted in some shortages, and
shortages generally cause price increases.
As covid hit it's peak, there was relief for businesses, but there was also relief for
consumers, who used the relief to buy scarcer goods and services.
Once we got to 2021 and 2022, and slowly subsiding covid allowed more and more
people to get out and spend while hundreds of thousands of businesses went bankrupt
(including literally every competitor of Transocean), major new stimulus was passed
into law by congress and President Biden. In this case, however, the stimulus was
very heavily weighted toward "keynesian" stimulus, meaning that it put many Trillions
of dollars into consumers' hands, but relatively little toward businesses and investors.
The result was predictable (by me, anyway). Consumers ramped up their spending to
levels far exceeding the business and industrial sectors' ability to meet that demand, and
inflation exploded from under 2% to more than 9%. Belatedly, the Fed stomped on the
monetary brakes, and that resulted in mortgage rates previously below 3% to zoom past
7%.
Generally, we expect such significant tightening by the Fed to weaken the economy, and
ultimately cool inflation as that causes less consumer spending and the supply and demand
for goods and services to balance out. But that hasn't happened. The economy hasn't
entered a recession, and inflation has yet to return to the Fed's normal 2% target, so
the Fed continues to delay easing, and interest rates continue to make life miserable for
Americans. But amidst their misery, they're still spending... why?
The reason, is that the mega-spending programs passed in 2021 and 2022 prior to the
Republican takeover of the house are still pumping money into consumers' pocketbooks.
The spending programs were designed to put money into consumers' (voters?) pockets
for many, many years after they were enacted during 2021 and 2022.
Further, additional spending that the President is able to enact, like student loan
forgiveness that's currently happening, is providing even more Keynesian stimulus.
So, what we've been experiencing is akin to stomping on the gas (fiscal) and stomping
on the brakes (the Fed) at the same time, and the economic machinations that one
would expect from that are part and parcel to the current high degree of consumer
unhappiness we're seeing in the polls, despite the fact that we've not entered a true
recession.
Hopefully, we'll get to a point where the Fed will ease some. But in the meantime,
we need to decide if the Keynesian economics we've seen over the last few years, or
the supply side economics we saw late last decade, is what we would like to see in 2025
and beyond. The comparison, is low unemployment, low interest rates, low inflation,
and high GDP growth we saw during the Trump administration before covid disrupted that
economy, or the still low unemployment, high interest rates, elevated inflation and more
subdued economic growth we've seen as a result of Mr. Biden's Keynesian economic
approach.
part of the truth.
Covid clobbered demand for goods and services on the one hand, and further clobbered
the businesses hurt by low demand by placing lock-down constraints on them. So when
covid subsided and people started buying goods and services again, the weak supply
chains needed to provide those goods and services resulted in some shortages, and
shortages generally cause price increases.
As covid hit it's peak, there was relief for businesses, but there was also relief for
consumers, who used the relief to buy scarcer goods and services.
Once we got to 2021 and 2022, and slowly subsiding covid allowed more and more
people to get out and spend while hundreds of thousands of businesses went bankrupt
(including literally every competitor of Transocean), major new stimulus was passed
into law by congress and President Biden. In this case, however, the stimulus was
very heavily weighted toward "keynesian" stimulus, meaning that it put many Trillions
of dollars into consumers' hands, but relatively little toward businesses and investors.
The result was predictable (by me, anyway). Consumers ramped up their spending to
levels far exceeding the business and industrial sectors' ability to meet that demand, and
inflation exploded from under 2% to more than 9%. Belatedly, the Fed stomped on the
monetary brakes, and that resulted in mortgage rates previously below 3% to zoom past
7%.
Generally, we expect such significant tightening by the Fed to weaken the economy, and
ultimately cool inflation as that causes less consumer spending and the supply and demand
for goods and services to balance out. But that hasn't happened. The economy hasn't
entered a recession, and inflation has yet to return to the Fed's normal 2% target, so
the Fed continues to delay easing, and interest rates continue to make life miserable for
Americans. But amidst their misery, they're still spending... why?
The reason, is that the mega-spending programs passed in 2021 and 2022 prior to the
Republican takeover of the house are still pumping money into consumers' pocketbooks.
The spending programs were designed to put money into consumers' (voters?) pockets
for many, many years after they were enacted during 2021 and 2022.
Further, additional spending that the President is able to enact, like student loan
forgiveness that's currently happening, is providing even more Keynesian stimulus.
So, what we've been experiencing is akin to stomping on the gas (fiscal) and stomping
on the brakes (the Fed) at the same time, and the economic machinations that one
would expect from that are part and parcel to the current high degree of consumer
unhappiness we're seeing in the polls, despite the fact that we've not entered a true
recession.
Hopefully, we'll get to a point where the Fed will ease some. But in the meantime,
we need to decide if the Keynesian economics we've seen over the last few years, or
the supply side economics we saw late last decade, is what we would like to see in 2025
and beyond. The comparison, is low unemployment, low interest rates, low inflation,
and high GDP growth we saw during the Trump administration before covid disrupted that
economy, or the still low unemployment, high interest rates, elevated inflation and more
subdued economic growth we've seen as a result of Mr. Biden's Keynesian economic
approach.
